Price War

You run one of two petrol stations in a small town. Every week you and your rival set your prices at the same moment: keep them high, or undercut. Four rivals play secret strategies, from tit-for-tat to a discounter that always undercuts. You can also phone a rival and fix prices, but the CMA may come knocking.

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What it covers

• Reading a payoff matrix, dominant strategies and the Nash equilibrium
• The prisoner’s dilemma and why firms end up worse off
• Repeated games, tacit collusion and price wars
• Cartels, the Competition Act 1998 and the CMA leniency programme
• The conditions that make collusion more likely, for evaluation marks

Edexcel A Level Economics A (9EC0), Theme 3.4 Market structures.