Price Wars in Oligopoly: A Game Theoretic Review

Abstract

This literature review explores price wars in oligopoly markets from a game-theoretic perspective, focusing on how theoretical models explain emergence of price wars. The study categorizes models into three groups: imperfect monitoring models, cyclical models and learning models. All of the models suggest that price wars are the result of fluctuating demand. However, the models differ in terms of predicting the emergence of price wars at different levels of demand. Discussion of the models emphasises that while these models offer valuable insights into the triggers of price wars, their practical relevance is limited due to simplifying assumptions.