Explore BrainMass

single-period oligopolies

Is a repeated or single-period game more appropriate for the study of oligopolies? In which setting is collusion more likely to be a stable outcome? Explain.

© BrainMass Inc. brainmass.com June 19, 2018, 12:01 pm ad1c9bdddf

Solution Preview

A repeated game is more appropriate (for reasons which I will describe below). Collusion may be more stable in repeated games (under extreme conditions), but will never be stable under the single period game.

First, we should note that single period oligopolies are identical to the prisoner's dilemma. Both firms have incentives to cheat, because cheating gives them a higher return for this period. Since the game is only single period, there is nothing more to consider other than present returns, so obviously everyone would cheat.

However, the single period game is inappropriate to model oligopolies. For most businesses, their goal is to stay in the market for as long as possible rather than earn a lot of money in one period and leave. Most oligopolies we can name have been operating for a long time, for example, ...