Question

A. Under the Kinked Demand Curve Model that pertains to oligopolies, how will competing firms react to a "rogue" firm if it decides to raise the price of its product? Explain why.


B. What is the basic approach used in all Game Theory models?

C. When is the use of a game theory likely to help a firm enjoy more success, and when is it likely to lead to some losses?   

Answer 1

PART-1) Kinked Demand Curve Model refer to the prices for products and services that do not respond immediately to changing economic conditions because of an assumption that price drop is more likely to be mismatched by competitors than its price increase. Thus they react asymmetrically to the changes in price of other firms

PART-2) Game theory mathematically capture behavior in strategic circumstances, in which an individual’s success in making choices depends on the others choices with a motive to use the best strategy to achieve desired results

　

PART-3) Game theory model has direct relevance to the study of the behaviour and conduct of firms in oligopolistic markets. Thus when the business uses model to analyze the actions of a direct competitor whose actions are likely to affect the success of the firm it enjoys success when the theory is not properly understood or incorrectly implemented it is likely to suffer losses