Session 7: Game theory and strategic competition Flashcards
1
Q
What is an oligopoly
A
Few number of firms with market power
2
Q
What is game theory?
A
Theory designed to understand strategic decision-making
Key point: it is essential to understand your opponent’s point of view and to deduce their likely responses to your actions
3
Q
What is the Nash Equilibrium?
A
Condition where each player is doing the best given the actions of its opponents
4
Q
What is the prisoner’s dilemma?
A
Two firms have to choose from least negative options in game theory
5
Q
What are the traits of a cartel?
A
Total demand must be relatively inelastic
Cartel must have control of a majority of the supply
Need enforcement mechanisms for cheaters
