OLIGOPOLY - Oligopoly Firms - The Game Theory
It is a market that is seen to be dominated by very few large suppliers than many of them. In this case, the market concentration degree is seen to be very high.
This means that a very large portion or percentage of the market is taken by the firms that are leading in the business and a very few percent is taken up the all other firms that are in the same industry. They are a number of barriers to entry in the market for the other firms. It would be a very long time for a new firm to establish it.
The oligopoly firms:
They are the firms that are very well known to be producing only the branded items. They are very good in the field of advertising and marketing too. This would be the main reason why they are groping the limelight and why they are one of the very few leading firms. There is another great thing that has to be noted in these oligopoly firms.
It is that they have to think what would happen to them when they are trying to do something about the price levels. If they are trying to raise the price levels, they may find that the other firms may not want to make a price hike of too much. This way they can retain their customers for long. This is the time when they market is highly uncertain and the game theory comes in to play.
The game theory:
It is about the way how the firms anticipate the other firms’ moves. This comes in to the scene when the firms will have to think what would happen if there are decisions taken by your firm. The firm that is taking decisions should be able to decide on what the other firms would do or react to this decision. This should always be supported with firm reasoning.
There are a number of places where this game theory is put to use. It can be in the formation of coalition governments in politics, the prices at which to sell your goods, the best place where you could start your firm, and many more. All these can result in implicit or explicit collusion between the major firms in the market. There is the instance of collusion seen when the firms are in agreement to act accordingly if they were in the monopoly position.