Ellen Kobe

Formal Agreement Between Firms To Set Prices Or To Behave In A Cooperative Manner

The prisoner`s dilemma is a canonical example of a game that is analyzed in game theory and shows why two individuals cannot work together, even if it seems that it is in their best interest to do so. Cournot duopoly is an economic model that describes an industry structure in which companies compete at the production level. The model is based on the following assumptions: in an oligopoly, companies are interdependent; they are not only concerned with their own decisions about the quantity to be produced, but also with the decisions of other companies in the market. Game theory provides a useful framework for thinking about how companies can act in the context of this interdependence. In particular, game theory can be used to model situations in which each player must also think about how other players might react to this action if they decide what to do next. A variant of this traditional theory is the theory of folded demand. Businesses are faced with a drop in demand if, in the event of a price drop in a company, they are expected to follow this example in order to maintain their turnover. If a company increases its price, its rivals probably won`t follow, as they would lose the revenue gains they would otherwise get if they kept prices at the previous level. Lower demand potentially favours more competitive prices, as each company, contrary to the advantages of neoclassical theory and certain game theory models such as Bertrand`s competition, would benefit from lower prices.

In an oligopoly, companies work under imperfect competition. Given the strong price competitiveness generated by this sticky demand curve, companies are taking advantage of non-tariff competition to generate higher revenues and market share. The Bertrand model describes the interactions between companies that compete for the price. Companies set maximum prices in response to what they expect from a competitor. The model is based on the following assumptions: collusion, collusion and cooperation between interested parties for fraudulent, deceptive or illegal purposes. In the context of the study of the economy and competition in the market, agreements are concluded within the same sector when competing companies cooperate in their mutual interest. Agreements often take place within an oligopoly structure where there are few companies and agreements have a significant impact on the entire market or on the sector as a whole. In order to distinguish an agreement, collusive agreements between parties must not be explicit; However, the effects of agreements and agreements are the same. [4] Sometimes companies do not fail with each other, even if cooperation leads to a better collective outcome. If you accidentally put the card in the wrong field, just click on the card to remove it from the cardboard.

To see how well you know the information, try the quiz or test activity. [8] While game theory is important for understanding festival behaviour, it is generally not necessary to understand competitive or monopolized markets.