This examines oligopoly behavior as a series of strategic moves and countermoves among rival firms. It analyzes the behavior of decision-makers and how their choices affect their rivals. The focus of game theory is on the player s incentive to cooperate or compete. The firms act based on what they believe the payoff is for a certain action. Some want to avoid the worst outcome.
Price wars are game theory.
Kinked Demand Kinked demand oligopoly is based on the simple idea that if a firm cuts its price, other firms will cut theirs to avoid losing customers. But if the firm raises its price, the other firms will stand at their level, not raising price. The other firms hope to steal customers away from the firm with the increased price. This is way some oligopoly prices tend to remain unchanged even in the face of changing costs. Oligopoly vs. Perfect Competition Because of all the different types of oligopoly behavior, you can t have an easy comparison.