Notesale: Turn your study into money

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Define an Oligopoly market:

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A market with a few sellers, in which each firm must take account the behavior and likely
behavior of rivals firms in the industry
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Each firm has to act strategically, both in reacting to rival firms' decisions and in trying to
anticipate their future actions
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Give reasons, with examples, as to why firms may choose to engage in collusive behavior
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Overt collusion: A situation in which firms openly work together to agree on prices or market
shares
Tacit collusion: A situation occurring when firms refrain from competing on price, but without
communication or formal agreement between them
A Cartel: a agreement between firms on price and output with the intention of maximizing their joint
profits

What is Game Theory?

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A method of modelling the strategic interaction between firms in an oligopoly; a branch of
maths that had a wide application in explaining the behavior of firms in an oligopoly
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The two are in separate cells and cannot
communicate with each other, The police have enough evidence to convict them of a minor
offence, but not enough to convict them of the major one
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If both refuse the deal, they will just be charged with the minor offence
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The inevitable result is that both people are selfish and will confess, giving each 10 years;
yet if they both refused they would be both better off- however the risk is too high
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g Diamond Tools and Better spades operating each firm has a
choice of producing high output or low output
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The situation maximizes joint profits is for both firms to produce low; Nash equilibrium a
situation occurring within a game when each players chosen strategy maximizes payoffs
given the other player's choice, so that no player has a incentive to alter behavior
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https://www
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org/blog/21475/economics/collusion-meaning-and-examples/
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After a period of low milk, butter and cheese prices, supermarkets such as Asda
and Sainsbury’s colluded with Dairy suppliers, Dairy Crest and Wiseman Dairies
to increase the price of milk, cheese and other dairy products in supermarkets
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The OFT found prices set by supermarkets went up by three pence per pint of
milk, but the income received by farmers did not go up
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However, for the consumers this is a negative impact due to the increase in price
of milk has risen, especially because milk is a necessity, making it an inelastic
good
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Therefore
they may see a lower profit margin if they absorb the losses

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