AP Microeconomics AMSCO Guided Notes
4.5: Oligopoly and Game Theory
AP Microeconomics Guided Notes
AMSCO 4.5 - Oligopoly and Game Theory
Essential Questions
- What are the effects of oligopoly and game theory on consumers?
I. Oligopoly
1. What is an oligopoly and what are its key characteristics?
2. How does the interdependence of firms in an oligopoly affect their pricing and output decisions?
A. How Oligopolies Work
1. Why do high barriers to entry help maintain oligopolies in industries like commercial airlines?
2. What is collusion and how do governments respond when they suspect it is occurring?
3. What is a cartel and how does OPEC illustrate the structure and function of a cartel?
II. Game Theory
1. What is game theory and how does it apply to analyzing firm behavior in oligopolies?
A. Dominant Strategy and the Prisoners' Dilemma
1. What is a dominant strategy and why might it not guarantee the highest possible payoff?
2. What is the prisoners' dilemma and how does it explain why collusion is difficult to maintain in oligopolies?
B. Nash Equilibrium
1. What is Nash equilibrium and why is it not necessarily the best outcome for all players involved?
2. How do antitrust laws prevent oligopolists from achieving the benefits of a monopoly through collusion?
Key Terms
oligopoly
duopoly
collusion
cartel
game theory
dominant strategy
prisoners' dilemma
Nash equilibrium