In what ways is game theory of use in analyzing the behaviour of firms in an oligopolistic market?

An oligopolistic market is a market dominated by a sm either yield of participants who argon able to collectively praxis control over supply and market prices. A everlasting theme of oligopoly opening is whether prices be determinate with oligopolistic interaction. *A quash of interesting new developments on the oligopoly front can be traced back to Stigler (1964) who examined the relationship between collusion and the information psychogenic synthesis of an oligopolistic market. He argued that the base problem in colluding to increase voice profits is that if policing the agreement. This is a problem in the thinkable action of information, since whodunit price cutting must be detectable for requital to be possible, or for a bane of retaliation to be credible (*quoted from Oligopoly, Competition and Welf be - Geroski, Phlips, Ulph). The basic dilemma suggests that any(prenominal) the point chosen on the profit frontier, distributively penis finds it profitabl e to produce more(prenominal) than the quota allotted to him and so has an incentive to cheat whether the an another(prenominal)(prenominal) members cheat or not. The prisoners dilemma is a agency where for each one fake has two strategies and the profits are such that for each player, cheating is a dominant strategy, i.e., the slime out strategy no matter what strategy the other player assumes. This can be illustrated by the basic feisty surmisal model. Game theory is the framework used to collapse situations of interdependent or strategic decisions, i.e., decisions whose output depends on the decisions of all agents involved.

The main elements of the theory are: set of pl ayers, set of strategies and each players pa! yoff. Thus, since an oligopoly is a situation in which firms decision depends on the decisions of the other firms, game theory provides the appropriate framework to analyze oligopolistic industries. The players are the different firms, they choose strategies regarding some... OPEC actually sets production quotas (with an eye to a price level) which is more like Cournot than Bertrand. If you want to get a full essay, aim it on our website: OrderEssay.net

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