How does game theory apply to pricing decisions in an oligopoly?
Firms use payoff matrices to analyze the potential outcomes of different pricing strategies, considering the likely responses of their competitors.
How do high barriers to entry affect long-run profits in an oligopoly?
High barriers prevent new firms from entering, allowing existing firms to maintain market power and earn economic profits in the long run.
How does non-price competition manifest in the cereal industry?
Firms compete through advertising, product differentiation (e.g., different flavors, added ingredients), and loyalty programs to attract customers.
How does the concept of interdependence affect decision-making in the automobile industry?
Each firm must consider how its pricing, production, and marketing decisions will affect its rivals and how those rivals will likely respond.
How does collusion impact consumer surplus in an oligopoly?
Collusion leads to higher prices and lower output, reducing consumer surplus and transferring wealth to the oligopolistic firms.
How does the absence of a dominant strategy affect firm behavior in an oligopoly?
Firms must carefully analyze their rivals' potential actions and choose strategies that maximize their own payoffs given the uncertainty.
How can advertising create barriers to entry in an oligopoly?
Established firms can build strong brand loyalty through extensive advertising, making it difficult for new entrants to attract customers.
How does product differentiation lead to market power in an oligopoly?
By offering products with unique features or perceived benefits, firms can create brand loyalty and charge prices above marginal cost.
In the Coca-Cola and Pepsi game theory example, what is the outcome if both firms act in their own self-interest without colluding?
Both firms will charge a lower price, resulting in a profit of $1000 each.
How does the presence of a Nash Equilibrium indicate stability in an oligopoly market?
It signifies that no firm has an incentive to unilaterally change its strategy, given the strategies of the other firms, leading to a predictable market outcome.
What are the differences between oligopoly and monopolistic competition?
Oligopoly has few firms, high barriers, and interdependence. Monopolistic competition has many firms, low barriers, and differentiated products.
What are the differences between oligopoly and monopoly?
Oligopoly has a few dominant firms, while a monopoly has a single firm. Oligopolies have interdependent decision-making, while monopolies do not.
What are the differences between a dominant strategy and Nash Equilibrium?
A dominant strategy is the best choice for a firm regardless of the other firm's actions. Nash Equilibrium is a stable state where no player can unilaterally improve their position.
What are the differences between collusion and non-cooperative behavior in oligopolies?
Collusion involves firms cooperating to maximize joint profits, while non-cooperative behavior involves firms acting independently in their own self-interest.
What are the differences between price competition and non-price competition in oligopolies?
Price competition involves firms competing based on price, while non-price competition involves competing based on factors like advertising, product differentiation, and customer service.
What are the differences between a duopoly and an oligopoly with multiple firms?
A duopoly involves only two firms, making strategic interactions simpler to analyze. Oligopolies with multiple firms have more complex interactions.
What are the key differences between perfect competition and oligopoly?
Perfect competition has many small firms, homogeneous products, and no market power, while oligopoly has few large firms, differentiated products, and some market power.
Analyze the kinked demand curve for an oligopoly.
The demand curve is more elastic above the current price (competitors don't match price increases) and more inelastic below the current price (competitors match price decreases).
