Explain oligopoly''s structure and use game theory, Game Theory

Assignment Help:

Explain oligopoly's structure and use game theory to explain why oligopoly firms tend not to use price to compete.

Answer-

Oligopoly is an imperfect market where there are a few sellers in the market, producing either identical products or producing products which are close but not perfect substitutes of each other. Main features of this market are as follows-

1)  Few sellers in the market.

2)  Lack of uniformity.

3)  Homogenous or differentiated product.

4)  Advertisement and selling costs.

5)  Interdependence of firms on each other.

6)  Barriers on entry and exit.

Firms do not use prices to compete with each other because if a firm will reduce its product's price the other firm will respond by lowering its price too. The first will then react by further lowering its product's price. This way the firms will act and react on each other's decision relating to price change. This cut throat competition will reduce each firm's profits. On the other hand if the firm raises the price of product it is not certain if the other will also raise its price. In this case the firm will lose because its customers will shift to other firms product Therefore firms prefer not to compete on the basis of price rather they would prefer non-price competition as the monopolist firms do.


Related Discussions:- Explain oligopoly''s structure and use game theory

Incentive, A payoff offerd as a bequest for someone partaking in some activ...

A payoff offerd as a bequest for someone partaking in some activity that doesn't directly provide her with profit. Often, such incentives are given to beat the ethical hazard drawb

Totally mixed strategy, A mixed strategy during which the player assigns st...

A mixed strategy during which the player assigns strictly positive chance to each pure strategy.Morgenstern, Oskar,Coauthor of Theory of Games and Economic Behavior with John von N

Evolutionary games, How much time you want to spend on this material willde...

How much time you want to spend on this material willdepend on the focus of your course. For many social sciencecourses, a general exposure to the ideas, based on a quick runthroug

Nash equilibrium, Consider a game in which player 1 chooses rows, player 2 ...

Consider a game in which player 1 chooses rows, player 2 chooses columns and player 3 chooses matrices. Only Player 3''s payoffs are given below. Show that D is not a best response

Cournot learning, The Cournot adjustment model, initial proposed by Augusti...

The Cournot adjustment model, initial proposed by Augustin Cournot within the context of a duopoly, has players choose methods sequentially. In every amount, a firm selects the act

Grim trigger strategy, A trigger strategy sometimes applied to repeated pri...

A trigger strategy sometimes applied to repeated prisoner's dilemmas during which a player begins by cooperating within the initial amount, and continues to cooperate till one defe

Full equilibrium strategy example, (a) A player wins if she takes the tota...

(a) A player wins if she takes the total to 100 and additions of any value from 1 through 10 are allowed. Thus, if you take the sum to 89, you are guaran- teed to win; your oppone

Maximization problem, Two individuals (i ∈ {1, 2}) work independently on a ...

Two individuals (i ∈ {1, 2}) work independently on a joint project. They each independently decide how much e ort ei they put. E ort choice has to be any real number between 0 and

Assurance game scenario, "Assurance game" is a general name for the game m...

"Assurance game" is a general name for the game more commonly known as "Stag Hunt." The French philosopher, Jean Jacques Rousseau, presented the subsequent circumstances. Two hunte

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd