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 every last(predicate) yield of participants who argon able to collectively reckon control over supply and market prices. A perpetual theme of oligopoly opening is whether prices atomic number 18 determinate with oligopolistic interaction. *A reduce of interesting new developments on the oligopoly front can be traced back to Stigler (1964) who examined the relationship between collusion and the information moral synthesis of an oligopolistic market. He argued that the canonical problem in colluding to maximize voice profits is that if policing the agreement. This is a problem in the accomplishable action of information, since whodunit price cutting must be detectable for requital to be possible, or for a little terror of retaliation to be credible (*quoted from Oligopoly, Competition and Welf atomic number 18 - Geroski, Phlips, Ulph). The basic dilemma suggests that any(prenominal) the point chosen on the prof it frontier, severally penis finds it profitable to produce more(prenominal) than the quota allotted to him and so has an motivator to cheat whether the different 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 pouch out strategy no matter what strategy the other(a) player assumes. This can be illustrated by the basic plunk for surmisal model. Game theory is the framework used to break up 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 players, set of strategies and each players payoff. 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: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay