(1) In perfect competition, firms cannot control market price and thus market price tends to be lower than that of monopoly and oligopoly. In some occasions, however, firms in oligopoly may decrease market price substantially. Explain why this could be the case using ideas of game theory.

(2) Further, identify a real-world example of "market close to perfect competition" and a real-world example of "oligopolistic market with price-cut-competition", and compare their mechanisms.

Answer rating: 100% (QA)

Answer 1 In perfect competition firms are pricetakers meaning they cannot control the market price which is determined by the interaction of market demand and supply This results in a lower market pri... View the full answer