3.4.4 - oligopoly part 3

Question 1

Describe prisoners dilemma

Answer 1

A problem in game theory that demonstrates why two people might not
cooperate even if it is in both their best interests to do so. In the classic
game, cooperating is strictly dominated by defecting, so that the only possible equilibrium for the game is for all players to defect. No matter what the other player does, one player will always gain a greater payoff by playing defect

Question 2

Define dominant strategy

Answer 2

A dominant strategy in game theory is one where a single strategy is best for
a player regardless of what strategy the other players in the game decide to
use.

Question 3

Define first mover advantage

Answer 3

The idea that a business that creates a new product and which is first into
the market can develop a competitive advantage perhaps through learning
by doing - making it more difficult and costly for new firms to achieve profitable entry.

Question 4

First mover advantage in oligopoly

Answer 4

firms know they get an advantage if they break the agreement before anyone else
- if one cheats, other people will find it more beneficial to stay in the non cheating boxes rather than all worse off

Question 5

cons of being a first mover

Answer 5

• first mvoer cna make massive profit and win ms early ut if they overestimate demand they can make huge losses
• competitors use tech the first firm makes reducing their costs and alloweing them to charge alower price than first mvoer