In an oligopoly, firms are affected not only by their own production decisions, but by the production decisions of other firms in the market as well. Game theory models
situations in which each actor, when deciding on a course of action, must also consider how others might respond to that action
.
What is game theory in oligopoly?
“Game theory is
the study of how people behave in strategic situations
. … This means that firms in oligopoly markets are playing a ‘game’ against each other. • To understand how they might act, we need to understand how players play games.
Why do economists use game theory to explain oligopolies chegg?
Question: Question 25 2 pts Why do economists use game theory to explain oligopolies? Oligopolies are complex and varied and game theory allows economists to model different variations of competition and cooperation.
Game theory allows economists to mimic the same simplicity of oligopolies
.
Why do economists use game theory to explain oligopolies quizlet?
T-F economists use game theory to model behavior of firms in an oligopolistic market
because these firms do not try to maximize profits
. This is due to firms constantly entering the market to the point where economic profits
How does Nash equilibrium occurs in oligopolistic market structure?
Nash Equilibrium Equilibrium in oligopoly markets means that
each firm will want to do the best it can given what its competitors are doing
, and these competitors will do the best they can given what that firm is doing.
What is predatory pricing quizlet?
Predatory pricing (also undercutting) is
a pricing strategy where a product or service is set at a very low price
, intending to drive competitors out of the market, or create barriers to entry for potential new competitors.
Which industry is most likely to be an oligopoly?
Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the
auto industry, cable television, and commercial air travel
.
What happen when oligopoly firms engage in cut throat competition?
What happen when oligopoly firms engage in cut-throat competition?
It tends to result in decreased profits. It tends to result in increased profits
.
Why is game theory so difficult?
Another problem is that game theory is
mentally taxing
. … And when the rules of the game aren’t clear, or when some information is hidden, or when the passage of time is introduced into the analysis, even seasoned game theorists sometimes have a hard time figuring things out.
What are the two types of collusion?
Collusion between firms can be observed in two different forms:
explicit collusion and implicit collusion
. Explicit collusion happens when a group of firms establish a formal agreement to engage in collusive commercial practices.
How do you solve Nash equilibrium?
There is not a specific formula to calculate the Nash equilibrium, but rather it can be determined by
modeling out different scenarios within a given game
to determine the payoff of each strategy and which would be the optimal strategy to choose.
Which is an example of predatory pricing?
A prime example of predatory pricing tactics between two large franchises can be seen in the prescription drug price war between Walmart and Target in Minnesota. Walmart, seeking to undercut the competition, initially began offering certain prescription drugs at well below its price floor.
What makes a high low pricing strategy appealing to sellers?
What makes a high/low pricing strategy appealing to sellers? A.
It attracts two distinct market segments.
Is Coca Cola an oligopoly?
Oligopoly: the market where only a few companies or firms making offering a product or service. The
soft drink company Coca-Cola can be seen as an oligopoly
. There are two companies which control the vast majority of the market share of the soft drink industry which is Coca-Cola and Pepsi.
Is Netflix an oligopoly?
The market structure that Netflix operates under is
an oligopoly
. In an oligopoly, there are a few companies that control the entire market. In the streaming market, Netflix, Hulu, and Amazon Are the main competitors. … With Netflix being the market leader, they have large influence over this market.
