Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Dominant Strategy - because it ensures the firm will always win regardless of competitors' actions.
B
Nash Equilibrium - as it represents a stable state where no firm has an incentive to change their strategy unilaterally.
C
Payoff Matrix - since it involves calculating potential outcomes based on various price adjustments.
D
Collusion - because it indicates an agreement among firms to set prices in a cooperative manner.
Understanding the Answer
Let's break down why this is correct
Answer
In an oligopoly, a few firms dominate the market, and their decisions are closely linked. When one firm considers lowering its prices to attract more customers, it must think about how other firms will react. This situation can be understood using game theory, which studies how players make decisions in strategic situations. For example, if one company lowers its prices, competitors might also lower theirs to keep their customers, leading to a price war that can hurt all firms' profits. Therefore, this strategic decision is categorized as a game of competitive strategy, where each firm's actions depend on the expected reactions of others.
Detailed Explanation
This choice is right because it looks at different outcomes based on price changes. Other options are incorrect because Some might think a dominant strategy always wins; People may believe Nash Equilibrium means no one should change their strategy.
Key Concepts
Game Theory
Oligopolies
Strategic Decision-Making
Topic
Game Theory and Oligopolies
Difficulty
medium level question
Cognitive Level
understand
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