Game Theory- For Gloves. Why new players hardly win!
When collusive agreements are made openly and formally, the firms involved are called a cartel. In some cases, collusion is successful; other times, the forces of competition overpower collusive behavior.
There are other possible oligopoly strategies that are associated with decision making based on game theory. The Cournot equilibrium and the Nash equilibrium are examples of specific strategic games.
In the Stackelberg model, the leader firm chooses its output first and then the follower firm chooses after observing the leader’s output. It can be shown that the leader firm has a distinct advantage, being a first mover.
In the Stackelberg game, the leader can aggressively overproduce to force the follower to scale back its production or even punish or eliminate the weaker opponent.
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