ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An oligopolist, on the other hand, also has to figure out the environment before computing the best output. This means that firms in oligopoly markets are playing a ‘game’ against each other. To understand how they might act, we need to understand how players play games. This is the role of Game Theory.

Detailed explanation-2: -’Game-theory’ can be used to explain ‘interdependence’ and ‘price-stickiness’, which are both characteristics of oligopolies. A game has three central components-players, outcomes and the need for a strategy.

Detailed explanation-3: -In the Oligopoly market, the actions of any sellers have a significant impact on the profits of all other sellers. Oligopoly is the market for a commodity that is dominated by a few firms, each of which producing a considerable proportion of the total output of the industry.

Detailed explanation-4: -If oligopolists compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to zero profits for all. If oligopolists collude with each other, they may effectively act like a monopoly and succeed in pushing up prices and earning consistently high levels of profit.