Cooperate for Profits or Compete for Market? Study of Oligopolistic Pricing with a Business Game

Abstract

This study investigated a dilemma faced by companies when they set their prices - to engage in tacit price cooperation to achieve acceptable average profits or to increase market share through intensive price competition. The results obtained in a seven-firm oligopoly were followed for over four years. A comparison of firms competing in THE MULTINATIONAL MANAGEMENT GAME showed that oligopolistic competition led to Nash equilibrium as suggested by Game Theory. Initial profits were transformed into longer-term losses and company share prices fell. The results suggest it is advisable for firms to pursue legal ways to obtain “cooperative competition” which results in benefits to stakeholders, that would otherwise not occur, as well as making the industry an attractive investment, helping to sustain the economy's development while being socially responsible by improving wages and creating and maintaining jobs.