• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Evaluate the use of game theory as a tool to explain oligopolistic behaviour

Extracts from this document...

Introduction

Evaluate the use of game theory as a tool to explain oligopolistic behaviour (25 marks) An oligopoly is a market structure that consists of a few dominating large firms in a particular industry. Game theory is the theory that explains the interaction between firms and decision that firms make. To some extent, using game theory as a tool to explain oligopolistic behaviour can have limits as the game theory is based on the idea that humans act rationally in making decisions. However, it could be argued that human beings do not act rationally all the time. Therefore, can we completely rely on game theory to use as a tool to explain oligopolistic behaviour? ...read more.

Middle

On the other hand, the game theory is based upon human being acting rationally on behalf of companies through taking calculated risks. However, we have seen in the recent bank crisis that this doesn't seem to be the case. For example, the Royal Bank of Scotland took over ABN AMRO banking group to be more competitive on a global scale, only after the takeover was is realised that ABN AMRO were heavy in toxic debt. Therefore, how can we possibly apply a theory to oligopolistic behaviour such as game theory, based on rationality, when such large and well established institutes behave in a non-rational manner? ...read more.

Conclusion

Understanding this is essential when discussing the game theory. Nevertheless, making a decision on behalf of a company can still carry risks which individuals are willing to take in order to benefit from rewards and bonuses. In other words, although people are capable of acting rationally, they STILL may choose not to under certain circumstances. Therefore, to suggest the game theory can be used as a unique and specific tool to explain oligopolistic behaviour would be wrong as it carries the flaws I have just mentioned. But, to use as an indicator of how oligopolies may behave under certain circumstances against other firms in a particular industry is a suitable tool. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. Explain what you understand by the Private Finance Initiative - Evaluate how successful it ...

    PFI also gets round tough public rules that prevent public bodies raising private cash. The attraction for the private sector is similar to that of a bank, (or building society) providing a mortgage to a homebuyer. They get regular payments for an extended period.

  2. The theory of Market Structure

    By employing product differentiation, the monopolistic competitor is trying to establish a comparison between its product and another competitors product. Product differentiation is when manufacturers make design changes to basically identical products. Instead of competing based upon price, we are competing based upon features.

  1. Monopoly: a Game or Reality?

    Take, for instance, the example of public transportation. If the transit industry were to become a monopolistic competition (or even an oligopoly), then a whole new line of transportation routes and methods would sprout up and Toronto's Transit System would become a labyrinth of roads and tunnels.

  2. Who has benefited most from the takeover of Liverpool football club

    Tom Hicks - Age 61 - Estimated worth: �500m The son of a Texas radio station owner, Hicks went into finance specifically private equity and made fortunes for his investors and himself with takeovers of soft drinks companies such as Dr.

  1. What are the origins of the Pension Crisis and what can be done to ...

    making it quite costly, so this level of uncertainty is now resulting in final-salary pension scheme dying, according to The Economist, among the top 350 quoted companies, the proportion of final-salary schemes open to new members fell from 64% at the end of 2001 to 33% at the end of 2003.

  2. For a duopoly involving homogeneous products, explain and contrast a Cournot, Stackelberg and Bertrand ...

    The can be used to show firms 1's optimal response to q2. Where the slope of the iso-profit curves are zero we get a line going through to indicate the firms reaction curve. Asthe model involves symmetry between the firms, the reaction curve for firm 2 over the relevant range is given by q2 = r2(q1)

  1. Economics Report on Budget

    today * An extra annual payment of �100 to pensioners over 80, on top of the existing �200 winter fuel payment. * All single pensioners with income below �139 a week and all couples below �203 a week will benefit from the new Pension Credit.

  2. The Importance of the Canadian Airline Industry.

    However, TCA had the monopoly on all domestic transcontinental routes between 1937 and 1959 (Sinha 57). In 1965, under McGregor's presidency, the name Trans-Canada Airlines was changed to Air Canada to demonstrate that the airline no longer operated exclusively within Canada.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work