Interdependence in Oligopolistic Markets

Question 1

Game theory can be used to understand the results of interdependence

Answer 1

1. Oligopolistic markets, each firm is affected by the behaviour of others - interdependent
   - Behaviour of firms in oligopolistic markets can be looked at as a kind of ‘mathematical game’
   => look in book pg 70

Question 2

The Kinked Demand Curve model is used to explain Price Stability

Answer 2

1. Can understand some outcomes fom certain oligopolistic markets by playing the game for each firms perspective
2. E.g. model of kinked demand curve illustrates why prices are often quite stable, even in some competitive oligopolies
3. There are two assumptions in the kinked demand curve model
   - Look at book for rest and graph pg 70

Question 3

The Kinked Demand Curve Model describes just one possible outcome

Answer 3

1. Kinked demand curve shows one type of interdependence
2. Doesnt explain the behaviour of firms in every oligopoly
3. Assumptions in the kinked demand curve might not be appropiate for every oligopoly - if not, the model won’t predict firm’s behaviour at all well. ….