Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can describe an oligopoly: a few firms, high barriers to entry and interdependent decisions. (Guide: “What makes a market an oligopoly”; Practice Q1)
- I can explain why oligopolists have an incentive to collude and form a cartel. (Guide: “Collusion and cartels”)
- I can define a game, a strategy, a payoff matrix, a dominant strategy and a Nash equilibrium. (Guide: “The language of game theory”)
- I can explain why oligopoly is inefficient and why its price is usually higher, and its output lower, than in perfect competition. (Guide: Figure 1; Practice Q4, Q7(d))
Calculation and skills
- I can read a payoff matrix, knowing which payoff belongs to which player. (Guide: Worked example 1(a))
- I can find a player’s dominant strategy, or show it has none, by comparing its own payoffs within each column or row. (Guide: “A method that always works”; Practice Q2, Q5(a))
- I can find every Nash equilibrium of a two-player, two-action game, including when only one player has a dominant strategy. (Guide: Worked example 2; Practice Q3)
- I can calculate the payment or penalty that must be exceeded to change a player’s dominant strategy, using the largest payoff gap. (Guide: Worked example 1(c); Practice Q5(c), Q6(c))
- I can build a cartel payoff matrix from a demand equation and a constant marginal cost. (Guide: Worked example 1; Practice Q7)
Reasoning
- I can explain the prisoner’s dilemma and why it makes cartels hard to sustain. (Guide: “Why oligopolists rarely reach the monopoly outcome”; Practice Q5(b))
- I can apply game theory to a non-market situation, such as a shared resource. (Guide: “Games outside markets”; Practice Q6)
- I can explain how changing one player’s payoffs changes the equilibrium, and why it may still not reach the cooperative outcome. (Practice Q5(d))
All ticked? Unit 4 is complete. Move on to Topic 5.1, Introduction to Factor Markets, or return to the course roadmap.