Oligopoly

Question 1

oligopoly
# of suppliers?
standard or differentiated product?
control over price?
barriers to entry?

Answer 1

• a few large producers
• homogenous or differentiated products
• mutual interdependence and strategic behavior to control price
• there are entry barriers

Question 2

each game theory has what?

Answer 2

• 2 competitors

- 2 price strategies

Question 3

what is the dominant strategy?

Answer 3

the best move to make regardless of what your opponent does

Question 4

mutual interdependence

Answer 4

when two or more entities depend on one another. In the case of an oligopoly, companies within a market are mutually interdependent. Each company has to consider the consequences of a change in strategy on competitors within that market. Oligopolists try to maximize profit. They work together to make it difficult for others to enter their market.

Question 5

collusion

Answer 5

an agreement between firms that usually compete against each other in efforts to set the prices for their goods in order to gain an advantage. In doing so, the equilibrium of the market is disrupted because supply and demand are no longer natural. When competitive firms work together they’re able to increase profits via price increases, restriction of supply, and/or sharing insider information.

Question 6

prisoners dilema

Answer 6

he two players in the game have been accused of a crime and have been placed in separate rooms so that they cannot communicate with one another. (In other words, they can’t collude or commit to cooperating.)
*Each player is asked independently whether he is going to confess to the crime or remain silent.
Because each of the two players has two possible options (strategies), there are four possible outcomes to the game.
If both players confess, they each get sent to jail, but for fewer years than if one of the players got ratted out by the other.
If one player confesses and the other remains silent, the silent player gets punished severely while the player who confessed gets to go free.
If both players remain silent, they each get a punishment that is less severe than if they both confess.
In the game itself, punishments (and rewards, where relevant) are represented by utility numbers. Positive numbers represent good outcomes, negative numbers represent bad outcomes, and one outcome is better than another if the number associated with it is greater. (Be careful, however, of how this works for negative numbers, since -5, for example, is greater than -20!)