Illustrate the power of game theory in explaining the behavior of oligopolists. A Simple Game Theory Experiment for Teaching Oligopoly . Team B's payoff are listed first. The rest of the class is instructed to make a prediction as to the prices chosen by each team. Any number of students.
Students take on the role of firms as either entrants or incumbents in a multi-period entry game.
The identity of each incumbent is unknown to potential entrants. Given this information asymmetry, a soft incumbent will choose to prey on entrants in early rounds so as to not advertise that they are soft. Kleit's experiments indicate that almost all entrants choose to enter in the first period. After these initial periods, the students are reassigned roles and randomly paired again for a second round of gaming. Most of the soft incumbents then figure that it is profitable to prey in the early periods, thereby discouraging later entry.