Oligopoly Market Simulation

A Prisoner's Dilemma Game

Introduction to Game Theory and Oligopoly

Welcome to the Oligopoly Market Simulation! This game demonstrates the principles of game theory through the lens of an oligopolistic market where just two firms dominate.

In this simulation, you will play as one of two firms in a market. Each round, you must decide whether to set a high or low price for your product:

  • High Price (Cooperate): You maintain industry profits, but risk being undercut
  • Low Price (Defect): You may gain market share at your competitor's expense, but risk triggering a price war

This is a classic example of the Prisoner's Dilemma - a situation where rational individual decisions can lead to suboptimal collective outcomes.

Game Setup

Competitor: High Price Competitor: Low Price
You: High Price You: $3M | Them: $3M You: $0M | Them: $5M
You: Low Price You: $5M | Them: $0M You: $1M | Them: $1M

Oligopoly Market Simulation

Round 1 of 10

Your Profits

$0M

Competitor's Profits

$0M

Make Your Decision

Competitor: High Price Competitor: Low Price
You: High Price You: $3M | Them: $3M You: $0M | Them: $5M
You: Low Price You: $5M | Them: $0M You: $1M | Them: $1M

Game History

Round Your Choice Competitor's Choice Your Profit Their Profit

Oligopoly Market Simulation

Final Results

Your Final Profits

$0M

Competitor's Final Profits

$0M

Game completed!

Game Analysis

Strategy Analysis

Your opponent used the Tit for Tat strategy.

Game Theory Insights

This game demonstrates key concepts in game theory as applied to oligopoly markets:

  • Prisoner's Dilemma: Although both firms would benefit from maintaining high prices (mutual cooperation), the individual incentive to undercut creates a tendency toward price wars.
  • Nash Equilibrium: In a one-shot game, the Nash equilibrium is for both firms to set low prices (mutual defection), leading to lower profits for both.
  • Repeated Games: When games are repeated, as in this simulation, cooperation becomes more viable as firms can punish defection in future rounds.
  • Strategies: Different competitive strategies (like Tit for Tat) can lead to different market outcomes and stability.