Archive | Theory of Games

We will illustrate this model with a duopolistic market in which the firms aim at the maximisation of their profit. Their products are close substitutes so that if their prices differ the firm with the lower price will supply the largest part of the market. It is assumed that the firms will use price as their instrumental variable. For simplicity [...]

The interdependence of firms in oligopolistic markets and the inherent uncertainty about competitors' reactions to any course of action adopted by a firm cannot be analysed effectively by the traditional tools of economic theory. Economists have developed collusive models, limit-pricing models, managerial models, and behavioural models, but these do not provide a general theory of oligopoly in the sense that [...]