Oligopoly and Business Strategy

Question 1

Oligopoly

Answer 1

Oligopoly

Only a few sellers, each offering a similar or identical product to the others.

Question 2

Attributes of Oligopoly

Answer 2

Few sellers offering similar or identical products.
Interdependent firms.
Best off cooperating and acting like a monopolist by producing a smaller quantity of output and charging a price above marginal cost.

Question 3

Key Lesson from Oligopoly

Answer 3

Conflict between individual self-interest and collective well-being of firms.Social incentives to cooperate and private interest to defect.

Question 4

Nash Equilibrium

Answer 4

In a Nash equilibrium no player has an incentive to deviate fromhis or herchosen strategy after consideringan opponent’s choice.

Question 5

When does a Nash Equiblirium Occur

Answer 5

Nash equilibrium occurs when no participant/player to break the equilibrium by changing his strategy. can improve their gains by altering their strategy if the strategies of other players remains unchanged.

No-one has an incentive

Question 6

Prisoner’s Dilemna/Dominant Strategy

Answer 6

The dominant strategy is the best strategy for a player to follow regardless of the strategies chosen by the other players.

Cooperation is difficult to maintain, because cooperation is not in the best interest of the

Question 7

Why people sometimes cooperate

Answer 7

Firms that care about future profits will cooperate in infinite games rather than cheating in a single game to achieve a one-time gain.

Betrayal/defection destroys trust.

Can enforce cooperation using other methods, eg violence, religious beliefs, peer group pressure, etc