Unit 2.11 · Market Failure: Market Power
Game Theory in Oligopoly
AO3AO4HLDiagram required
Syllabus Requirement
Simple payoff matrix showing strategic decision-making under interdependence. Illustrates price wars, collusion, and cheating.
Assessment Objectives
AO3Synthesis and Evaluation
AO4Use of Appropriate Skills
Summary
Game theory is a model used to analyze strategic interactions among firms in oligopolistic markets. It helps explain how firms make decisions based on the expected actions of their competitors, which can lead to outcomes that are not optimal for the market. Understanding these dynamics is important for analyzing market power and the potential for collusion versus competition.