Unit 5 – Oligopoly and Strategic Behaviour

The unit mainly discussed game theory of oligopolies. The unit started off by explaining simultaneous games where you and the other player/s do not know each other moves before moving. This generally means that people will play towards a dominant strategy that will benefit them best as they do not know what move the other player can play.

An example of a simultaneous game is when a contractor is bidding in a one-off blind tender. They do not know their competitions move and therefore will have to figure out whether it is better for them to bid high to have a better chance of getting the job or bid low and have a less chance of not getting the job. If it is a non-cooperative game the other player will being what the best outcome is for themselves, not worrying, what might be the best shared outcome for both/all players.

Most games in the business world are repeated. For say, in the above case, there will often be a time where the contractors are bidding for another job, and knowing how they bidded in the previous round they may use this information to alter their bid, to ensure the best outcome for their company.

Whereas sequential games is when one player chooses their move before the other players, meaning that the later players have more information when making their move. Often the best way to illustrate sequential games is via a decision tree, as it can show who makes the first mover advantage. There are first and second mover (and later mover) advantages, depend on the situation. However, generally as a rule, first mover advantages occur when the game is a competitive game. For example, a James Cameron launching his Avatar 3D movie before Alana in wonder land 3D movie. James Cameron being the first has set the standard for 3D movies and as a result is selling his technology to television and production companies. Which these companies have accepted as Cameron offered his technology first to companies that. Since he set the standard and it looks like 90% of companies will take up his offer, Alice in Wonderland’s producers have come out worst off whether they chose to offer their technology or not because there is no room for it.

Whereas in non-competitor games the second mover can use the information used from the first mover’s move to work out which the best course of action for them.

When you are involved in a game theory game, the following questions you need to ask yourself to figure out what type of game it is and what the best move would be.

• · Whether it is a simultaneous game or sequential game.
• · Whether your competitors are willing to co-operate or whether it is every person for themselves.
• · Is the information you have perfect or imperfect. Simultaneous games are always conducted under imperfect information.
• · Is the game’s outcomes symmetrical or are the outcome imbalanced.
• · Is it a repeated game or one shot game.