Discuss the role of game theory and the problems faced by the managers in decision making of a firm operating in an oligopoly market - Essay Example

Download file to see previous pages... The common characteristics of an oligopolistic market are product differentiation, barriers to entry, inter-reliant decision making amongst the organizations and non-price rivalry between the organizations1. Each organization in the oligopolistic market generally produces differentiated or branded products. The entry barriers to the oligopolistic form of market are very high which averts the weakening of the competition in the market. The few dominant organizations in the oligopoly market hence earn the maximum profits. However, these organizations are interdependent and have to consider the reaction of their competitors prior to making any decision regarding price change, production level or choice of non-price rivalry. The non-price rivalry amongst the oligopolistic organizations could be in various forms. A few of the non-price rivalry strategies are product diversification, brand development, and widespread after-sales services among others2.
Owing to the interdependent nature of the organizations operating in an oligopolistic market structure, the manager of such organizations has to implement strategic decision-making so that the business decisions made by them are the most beneficial one for their organization. Strategic decision-making requires the managers of a particular organization to make presumptions about how the competing organizations would respond to any choice they make. Such kinds of business decisions are very complicated in nature and the results of these decisions are also very indecisive owing to the inter-reliance amongst the organizations. The game theory is considered to be one of the imperative tools utilized by the managers of oligopolistic organizations in the process of strategic decision-making. The concept of game theory is the analysis of models of disagreement and cooperation amongst rational as well as smart decision makers3.
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