Teaching Activity: The Oligopoly Game (Game Theory)

Download this classic interactive teaching activity to use with your Economics students as an introduction to Game Theory and Oligopoly!

The purpose of The Oligopoly Game is to demonstrate the issue of game theory that presents itself to firms operating in an oligopolistic market when they are prevented from colluding by competition law.

The game, which usually takes around an hour to complete, mimics the classic conundrum of the ‘prisoners’ dilemma.’ The firms are attempting to make decisions about how they should operate without knowing for certain how their competitors will react. The problem is that their competitors’ reaction will have an impact on the success of the initial decision. The game illustrates that, for oligopolistic firms, the fact that they cannot predict their competitors reaction ultimately leads them to ‘play safe’ – i.e. shy away from changing prices and attempt to improve sales and profits by using other non-price strategies (such as increased advertising).