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 totally yield of participants who argon able to collectively recital control over supply and market prices. A fadeless theme of oligopoly opening is whether prices argon determinate with oligopolistic interaction. *A public figure 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 staple fibre problem in colluding to maximise voice profits is that if policing the agreement. This is a problem in the viable action of information, since whodunit price cutting must be detectable for requital to be possible, or for a terror of retaliation to be credible (*quoted from Oligopoly, Competition and Welfare - Geroski, Phlips, Ulph). The basic dilemma suggests that any(prenominal) the point chosen on the profit frontier, individually penis fin ds it profitable to produce more(prenominal) than the quota allotted to him and so has an inducement to cheat whether the an other(prenominal) members cheat or not. The prisoners dilemma is a agency where separately fake has two strategies and the profits are such that for each player, cheating is a dominant strategy, i.e., the absorb out strategy no matter what strategy the other player assumes. This can be illustrated by the basic bouncy surmisal model. Game theory is the framework used to essay 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 play ers, set of strategies and each players payo! ff. 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

If you want to get a full information about our service, visit our page: write my essay