The Controversy Of An Oligopoly

Sometimes it is difficult to make a dissection based on the kinds of actions in order to achieve greatness. It is especially hard on the market type called oligopoly because it is one of the most complicated market structure based on the issue of the competition it faces with other companies. An oligopoly is a market with only a few sellers that dominate the market by offering homogeneous products. It also possible in that this type of market has many smaller firms that may also contribute into the competition. By this effect it gives off a strong atmosphere of competition in the market by allowing prices wars to happen when companies fluctuate their price on goods and services to beat there competitors in the market, the barriers of entry

What makes oligopoly so competitive is by how companies cannot base decision making just by technical information, but must be aware of other reactions that their competitors make in the market. “Choosing how much to produce and what price to charge, each firm in an oligopoly is concerned not only with what its competitors are doing but also with how its competitors would react to what it might do”(Mankiw pg.330). There are exceptions of oligopolies that engage in price wars. A price war is a commercial competition that characterized cutting price below those of competitors. From this effect, one company may decide to reduce their price against their competitor that results into a spiraling effect to the others in the market by having to reduce their price’s. As an example CVS and Walgreens are similar companies that produce the same type of goods with the same types of prices. So both competitors try to beat one another by using a the format of a price war that can allow them to lowering there price’s to gain a profit over there competitors by using the average eye of a consumer to buy their company product over there competitor price. However, the problem about this tactic price

There is a game theory that was invented in economics that can imply prevention of price wars to be more beneficial to companies is by using collusion and cartel theory by using the form of prisoners dilemma. Each company has the decision based to set price on there goods and services by using law of diminishing marginal utility. On the other hand, the prisoners dilemma is a standard game analyze that proves an outcome by two completely rational individuals that might not cooperate with each other to the point where there is no appearances in their best interest. It’s called the prisoners dilemma from a story about two criminals in N. Gregory Mankiw book Principle of Economics about two guys that were carrying a unregistered gun that would result in a one year jail time, but the cops suspect that they both committed a crime of a bank robber so the game theory comes into effect by how the cops give them ultimatums. “Right now, we can lock you up for 1 year. If you confess to the bank robbery and implicate your partner, however, we’ll give you immunity and you can go free. Your partner will get 20 years in jail. But if you both confess to the crime, we won’t need your testimony and we can avoid the cost of a trail, so you will each get an intermediate sentence