The article discusses when an oligopoly market reaches a nash equilibrium, the information related to it. The importance of this is that when firms in an oligopoly reach a Nash equilibrium, there are no incentives for any firm to pay more than another since any increase in price would result in less profit as well as decrease the demand for their product. This is because the other firms would maintain their prices and have not changed in quantity.
This means that all of these companies agree on how much they should charge for goods without changing anything else about themselves or what they produce so consumers cannot tell which company has lower costs. For instance: if Company A charges $0 while Company B doesn’t then everyone will buy from Company A instead of both Nash equilibrium.
When an oligopoly market reaches a Nash equilibrium, information related to it is very important. The key takeaways from this article are:
The first thing you need to know about oligopolies is their definition. There are two types of industries – monopolistic competition and pure competition. Monopolistic competition is when there are many producers competing with each other, and pure competition is when there are few or no sellers of a good.
An oligopoly happens when you have more than one producer in industry but still fewer than the number needed for perfect market competition – just like monopolistic competitive industries. Oligopolies can take two forms:
Collusive oligopoly (which has less to do with colluding) where companies work together against consumers by keeping prices high and output low;
Noncollusive oligopoly doesn’t exist because it’s impossible for firms not to compete with their peers even if they want to cooperate on pricing.
In this type of economy, manufacturers face asymmetric information when they try to sell products. The sellers know their product and its price better than the buyers, who may not even be aware of how much profit margins are for a certain type or size of good.
This is where Nash Equilibrium enters the picture as an explanation for why oligopolies in this situation don’t engage in price wars: because it would result in no one earning more profits on goods sold, which means that everyone just loses out.
Instead, manufacturers will typically focus on other aspects of sales like advertising and customer satisfaction so long as there’s enough incentive to keep trying to attract new business – either by offering discounts or free samples.
If you’re unfamiliar with Game Theory, take time now to read up on what it’s all about: it offers an interesting new perspective on how markets work.
In a perfectly competitive market, the equilibrium is reached when price equals marginal cost, but in oligopolies, this doesn’t happen because of information issues.
This happens with industries like airlines or clothing stores that have only a few companies and they will do what they can to keep their prices artificially high so as not to upset customers who are unaware of other options – even if it means being “unprofitable” for long periods of time.
The Nash Equilibrium referred to in Game Theory explains why these firms don’t engage in price wars; instead, manufacturers focus on aspects like advertising and customer satisfaction when there’s enough incentive to at least try getting more customers.
The firms just keep their prices high and when they feel the need to change, it’s often a small adjustment instead of a big shift because if they are making too much money on something like an airline seat or clothes, then there is no incentive for them to lower the price even though that could potentially bring in more customers who would have bought one of the company’s other products at full price before.
In a perfectly competitive market, prices reach equilibrium when P = MC but this doesn’t happen with oligopolies because of information issues. This happens with industries such as airlines or clothing stores where only a few companies exist so these businesses will do what they can to keep their prices artificially high so as not upset customers who are unaware of the company’s other products.
One way that an oligopoly market reaches a Nash equilibrium is when there are two possible prices: high and low. This happens if one of those businesses decides to lower its price in order to bring in more customers who would have bought one of the company’s other products at full price before. If this business succeeds, it will take some away from another because they’re no longer able to charge as much for their product which means these companies need to shift their strategy or risk getting left behind altogether by competitors without any losses! It’s often just a small adjustment instead of a big shift because if they are making too much money on something like an airline seat or clothes, then there is no incentive for them to change.
The dilemma is when two oligopolies compete and where one company decides to lower its price, then the other will also need to in order to keep from going out of business because it’s not a nash equilibrium anymore. The first company might have gone for this strategy if they wanted more customers but now that both companies are competing on prices, there is no incentive for additional businesses or consumers to join either side because they would be better off just sitting back and waiting until one of them makes a mistake! This creates an environment where nobody wants to pay full price which means neither competitor can make any money unless they decide to start charging higher prices again so everyone comes running into their arms.
