Oligopoly as a Game
Game Theory
  • Game theory is the study of decision-making in situations where strategic interaction (moves and countermoves) between rivals occurs.
  • each oligopolist has to consider the potential responses of rivals when formulating price or output strategies.
    1. the strategic option each oligopolist confronts are summarized in Table 25.4
    2. the payoff to an oligopolist’s price cut depends on how its rivals respond.
    3. if a firm does not reduce its price, it cannot increase profits.
    4. the collective interests of the oligopoly are protected if no one cuts the market     price, but an individual oligopolist could lose if it holds the line on price when     rivals reduce price.
    5. risk assessment is the foundation of game theory
Prisoner's Dilemma

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this page is maintained by Reed Fisher
last updated October 27, 2004