Oligopoly – Game Theory and Dominant Strategy

Been covering this topic with my A2 class and found Jason Welker’s video very good at explaining Prisoner’s Dilemma and the dominant strategy.

In recent years game theory has become a popular way of examining the strategies that oligopolists may adopt in a market. Game theory involves studying the alternative strategies oligopolists may choose to adopt depending on their assumptions about their rivals’ behaviour. Put at its simplest, if a firm is considering reducing its price, in making its decision it will need to take into account how its rival oligopolists might react and how it will affect them. Firms can choose high risk or low risk strategies in what is very similar to a game of poker between four or five players.

Although game theory strategy involves some extremely difficult maths the A2 Economics course concentrates on relatively straightforward two-player zero-sum games where one player’s gain must equal the other player’s loss.

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