4.4 Oligopoly and Game Theory

Cards (66)

  • What is an oligopoly characterized by?
    Small number of firms
  • An oligopoly is a market structure characterized by a small number of firms, differentiated or standardized products, and significant barriers to entry
  • Few dominant firms control most of the market share in an oligopoly.
  • What are examples of barriers to entry in oligopoly markets?
    High capital costs, patents
  • In an oligopoly, firms have considerable influence over prices and output
  • What are the causes of oligopoly?
    1️⃣ Economies of Scale
    2️⃣ High Capital Investment
    3️⃣ Proprietary Technology
    4️⃣ Government Policies
  • Economies of scale can create barriers to entry in oligopolies.
  • Why does high capital investment act as a barrier to entry?
    Prevents new firms
  • Control over proprietary technology provides a competitive advantage, hindering market entry
  • High barriers to entry prevent new firms from entering an oligopoly market.
  • Which industry is an example of an oligopoly?
    Airline industry
  • Firms in an oligopoly can influence prices and outputs due to market dominance.
  • What are the two types of competition in oligopoly markets?
    Collusive and non-collusive
  • Collusion involves firms working together to restrict output and raise prices
  • Non-collusive competition often leads to price wars or product differentiation.
  • What is an example of collusion in the real world?
    OPEC coordinating oil production
  • Match the Game Theory concept with its description:
    Players ↔️ Entities making decisions
    Strategies ↔️ Possible actions or choices
    Payoffs ↔️ Outcomes or rewards
  • What is the Nash Equilibrium in Game Theory?
    Stable state no player benefits
  • In the Prisoner's Dilemma, maximizing individual profit leads to a suboptimal outcome for both firms.
  • In the Prisoner's Dilemma, both firms end up with lower profits than if they had both priced high
  • In Game Theory, players are entities making decisions
  • What are strategies in Game Theory?
    Possible actions or choices
  • Payoffs in Game Theory represent the outcomes or rewards each player receives.
  • What is the payoff if both firms A and B price high in the given payoff matrix?
    3
  • If one firm prices high and the other low, the profits are 1 and 4
  • Order the key concepts in Game Theory from most fundamental to applied.
    1️⃣ Players
    2️⃣ Strategies
    3️⃣ Payoffs
  • What characterizes an oligopoly in terms of the number of firms?
    Few dominant firms
  • High barriers to entry prevent new competitors from entering an oligopoly market.
  • The airline industry is an example of a market structure called an oligopoly
  • What is a key characteristic of an oligopoly market in terms of product type?
    Differentiated or standardized
  • Firms in an oligopoly have substantial influence over prices and output.
  • Name one factor that causes oligopolies to arise.
    Economies of scale
  • In an oligopoly, firms strategically plan their actions due to interdependence and may engage in collusive or non-collusive competition
  • Collusion in an oligopoly involves firms working together to restrict output and raise prices.
  • What is an example of non-collusive competition in an oligopoly?
    Price wars
  • In Game Theory, the Nash Equilibrium is a stable state where no player benefits from changing their strategy
  • How does Game Theory help analyze oligopolies?
    Strategic decision-making
  • The Nash Equilibrium in an oligopoly ensures that firms maximize their profits collectively.
    False
  • What is a Nash Equilibrium in an oligopoly?
    Stable state of strategies
  • High barriers to entry in oligopolies include high capital costs, patents, or regulatory requirements