Managerial Economics - Oligopoly Essay Example | Topics and Well Written Essays - 1250 words

Managerial Economics - Oligopoly - Essay ExampleThis act of Holland Sweetener amounted to an attempt to dilute the monopoly and commute the US market into an oligopoly comprised of two major suppliers of Aspartame. In order to do this the major issue presented in the case study is that of pricing. Strategic pricing in order to win the major buyers so as to capture market sh atomic number 18 and maximize profits. Given the usual assumptions of an identical product, identical costs and the Bertrand word form of oligopoly in which the both Monsanto and Holland Sweetener simultaneously decide to quote the price either as lavishly or low to Coke and Pepsi. Due to interdependence of the two sellers it becomes very important for severally sign to decide strategically whether to quote a low or a high price. In Bertrand oligopoly scheme reduces to simultaneously setting prices in the hope that the competition does not change its set price. Such contrasted or non cooperating pricing st rategies are increasingly being dealt with the constructs in Game Theory which not solely introduced the idea that conflict could be mathematically analyzed but also provided the terminology with which to do it. Rasmussen (2001) traces the get of the theoretical development in field by quoting the relevant literature and by stating that the evolution of the arguments more or less the Prisoners Dilemma construct (as in Tucker) and thereafter Nashs papers on the definition and existence of equilibrium that developed the field of the modern non-cooperative game possibility. However important and simultaneous developments were taking place in cooperative game theory through the important contributions of Nash and Shapley on bargaining games and Gillies and Shapley on the core theory utilized in study of cartels. These developments are traced in several books on economics and Game Theory. (Thus if each firm acts independently, the result is a Nash equilibrium. Part of the definition o f Nash equilibrium is that each player takes what the other players are doing as given when deciding what he should do he holds their behavior constant and adjusts his to maximize his gains. unless if one firm increases its output, the other firms must adjust whether they choose to or not. If they continue to charge the akin price, they will find that they are selling less if they continue to produce the same amount, the price they slew sell it for will fall. The pay-off matrix from the case study can be given as in Table 1 belowTable 1 Pay-off Matrix of Monsanto and Holland SweetenerIn this table Monsanto is equal as Player 1 and Holland Sweetener as the player 2.As per the assumptions the payoff have been categorized in various cells of the matrix.Player 1- Monsanto (Figures in $ Millions)Player 2- Holland SweetenerAn examination of the Table 1 reveals that following an independent strategy of pricing high Monsanto is likely to gain $300 million if Holland also priced high.How ever, its payoffs would plummet to $0 millions if