Game Theory and Oligopoly: Crash Course Economics #26

Would you like to play a game, Dr. Falken? Actually, this episode isn't really about games, or Matthew Broderick, or Thermonuclear War. But enough with the long references to 1983's best movie, War Games. Today Jacob and Adriene are going to teach you about Oligopolies, which are kind of like the monopolies that we talked about last week, except with more companies involved. Then we'll get to the games, or rather, the game theory. Which is all about how companies try to compete with each other in the real world.
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[@MrRomana3000]

Main Notes: 1- 4 types of markets A- Perfect competition Low barriers, identical products, no control over price (eg strawberries) B- Monopoly There is one large company that produces a product with few substitutes. And because high barriers prevent competition, a monopoly has a lot of control over price. C- Monopolistic competition a market with many producers and relatively low barriers; their products are very similar but not identical. (eg furniture stores or fast food) D- Oligopolies markets that have high barriers to entry and are controlled by a few large companies. Similar to monopolistic competition, their products are similar but not identical. That gives them some control over their prices. How? 2- Non-price competition: Companies focus on things like style, quality, location, or service. The goal is to distinguish their product from their competitors. The most recognizable form of non-price competition is advertising. 3- Game theory: the study of strategic decision making. 4- Collusion: If businesses don’t compete at all and they agree to charge the same high price, conspiring to form what economists call a cartel. They split the customers 50/50, but now they make even more profit -- benefiting at the expense of consumers. It’s illegal in the US. 5- Price leadership is when one company changes its prices, and its competitors have to decide if they’re going to follow suit. 6- Pay off matrix: In game theory, a payoff matrix is a table in which strategies of one player are listed in rows and those of the other player in columns and the cells show payoffs to each player such that the payoff of the row player is listed first.

[@babanrawale5804]

thank you

[@DavidWilliamsaz]

"No farmer can never convince you to pay $10 for strawberries when you can buy it from others for 4 dollars." Well you have never been to Whole Foods.

[@katzpajamas5123]

lol! RIGHT

[@legna20v]

+David Williams .. whole foods is a market not a farmer ... i am sure those guys are brutal when it comes to buying

[@DavidWilliamsaz]

legna20v They are talking about selling strawberries not buying them.

[@legna20v]

i know, i am just saying

[@Melecie]

Whole Foods is a different world where the typical rules of economics bend and don’t apply. Almost quoted from a previous episode.

[@Amn3sia]

But that's just a theory... A GAME THEORY! THANKS FOR WATCHING.

[@noahvinson445]

lol

[@hans6835]

Beat me to it.

[@flubs2298]

+Daniel Bagang (Danny) Aaaaaaaaaand CUT!

[@dantebarbieri]

+Pie Empire He beat us all to it... :(

[@Tsusagi]

I expected them or MatPat to come in and say that at the end

[@MANVSMENOFLEGEND]

3:12 Lady: "can you remember the Ad that ran before this video?" Me who uses ad blocker: "My goals are beyond your understanding..."

[@BlueRiging]

But hey, that's just a reference... an OVERDONE REFERENCE! THANKS FOR READING.

[@EnigmacTheFirst]

Nope.

[@Aaronlcyrus]

Well it is now...

[@killblade6]

I am loving every game theory reference here

[@Shadowofromefanatic]

+Flow Its a reference to the KZbin Channel "Game Theory" which investigates...well... the theories behind game concepts and mechanics.

[@asymmetricartist5647]

+BlueRiging This comment makes me happy. So Awesome comment!

[@stellarfirefly]

There's a basic flaw in your version of the Prisoner's Dilemna. If neither confesses, then both are free. For a true Prisoner's Dilemna scenario, the penalty for no confession on either side must be greater than the penalty for being the one who takes a deal against the other who remains silent.

[@grantcivyt]

+stellarfirefly It took me a while to parse that last sentence, but I finally agree. :)

[@TheMrVengeance]

+stellarfirefly - True, but this version still works. Not confessing risks the $20k fine if the other does. So confessing is the best strategy. It results in either going free or getting the lowest fine.

[@DelapierceD]

I was about to add that comment. Their payoff matrix with the bread is actually a more accurate prisoner's dilemma

[@ThePlectr]

NE is not about risk, it assumes utility is linear in payoffs. Their version of PD is wrong because that game allows for a cooperative NE

[@AmSeris]

+TheMrVengeance Not true at all. For this to work, the "I confess and the other party doesn't" situation, has to be more attractive than the "both of us don't confess" situation. Because if it's the same, then why would either of us go out of our way to make the other pay a whopping $20K? Like, unless we harbor negative feelings toward each other (even though we were just messing around playfully just now), there is virtually no point in confessing at all. I'd trust the other party to have enough common sense not to take the risk of paying $10K, for a chance of making me pay $20K even though there is no particular gain except making me incredibly mad and also broke.

[@eemaansyed1367]

man........his belt.....................

[@junkemail585]

"In this kind of game, if you lose, you're bankrupt" So Monopoly then... I call the top hat

[@Artbug]

Ad before the video? ...I can't remember a world before adblock.

[@TheMarauder51]

Or forced to reload the page or watch a potentially 2 minute long unskippable ad. Which I have had happen to me before ad-block -_-

[@Derekivery]

They messed it up because the in a proper prison dilemma if they both remain silent they still face a penalty. It should have been: If both confess - both pay $10,000 If both remain silent - both pay $5,000 If X confesses but Y remains silent - X pays $20,000. Y pays $0 If X remains silent but Y confesses -X pays $0 and Y pays $20,000 The idea is that you would confess because the best case scenario is paying nothing and the worst case scenario is paying $20,000. By confessing you assure you will not get the worst case scenario but you might get the best case scenario. While remaining silent has the the second best outcome it runs the risk of also producing the worst outcome. So under the ideas of game theory it would be stupid to remain silent. It's in the other person's best interest to confess... which makes it in your best interest to confess too. However if (as presented above) remaining silent could produce the best outcome, then there is no reason to assume the other person would confess, thus no reason to confess yourself. I'm not an expert in economics but I've studied this a bit. But hey, that's just a theory... A GAME THEORY!

[@hanchengwu6062]

yeah. agreed

[@Derekivery]

HughGlass sure, but should you trust criminals?

[@dushyantgarg1248]

Rather going on bookish examples, it's better to get the core of the subject, and these guys were awesome at it, so they didn't mess it, it's just you have to get out of books😉

[@majesticm4808]

Well, the example they presented didn't express why you'd confess. There's no reason for any party to confess at all, logically, but yet in their example both parties would confess.

[@dianamariastrasser]

Yes, my dd and I thought the same. It didn't make any sense that they both didn't stay silent but I didn't know anything about game theory before so thought they might be right and we might just not get it, lol.

[@cholten99]

+5 for the Futurama ship but -10 for "lame co-op games". Competition is important (and has its own fun games like 'Acquire') but learning to co-operate well is almost certainly more important for most people most of the time.

[@petitio_principii]

But not something we want companies or professionals providing the same product or service doing between themselves. With some leeway for workers at the bottom.

[@LuisOrtiz-xo5kc]

Prisoner's Dilemma explains a lot of things, like why the power blackout last so long, why workers sometimes don't go on strike and other stuff. Great video, thanx!

[@pogancristian5885]

This is awesome! I love game theory and this surely is good for the basic understanding of it. Good job, guys!

[@nashy008]

Best Economics Crash Course episode yet! Well explained! Great Analogies!

[@MktgMaven1]

These are truly awesome videos... Thanks for the work you put into creating them!

[@xapemanx]

I don't remember the ad because of adblock =3

[@Mr.Jasaw13]

[@user-fe8rh9rg7j]

I didn't see an ad either, KZbin Red boi

[@Tuckems]

xApemanx FBI OPEN UP

[@Alycorredor]

I really got happy and excited when I saw Mr. Clifford here since I wasn't expecting him LMAOO that says a lot

[@Gametheory101]

4:30 isn't a prisoner's dilemma. Assuming everyone wants to maximize individual money, both not confessing is a Nash equilibrium. Efficiency is possible here.

[@IntelligenceMedia1]

The Nash equilibrium is not to confess and save at least 10k.

[@W1ll14m317]

+William Spaniel : What you say would be true if they believed that they would both cooperate (by not confessing). However, since each party obviously believed that the other would not cooperate (and so confess), it was in the best interest of both to confess because if they didn't then they would be landed with a 20k fee. The point is that they both believed the other would confess (and by believing it made it true) and so non-cooperation (i.e. confession) was their best course of action. Non-cooperation is thus also possible under the conditions of a Nash Equilibrium.

[@josephporter9562]

Both of these answers are correct. Which means you are no longer using a perfect nash equilibrium, now you have to use a mixed nash equilibrium, bring the algebra into game theory. there would be x%of and y% of b as the answer basically. X%a/Y%b

[@ThePlectr]

wrong, you are violating rational expectations assumption or using tremble hand equilibrium instead of NE. NE clearly says cooperation is possible

[@mikeborcherding5556]

Came here for this. Neither would confess.

[@tylernatof7652]

Very concise, articulate, and engaging delivery of the material. Thank you so much!

[@josephread4702]

Excellent crash course short-films. Entertaining and fun to watch while also relevant and informative.

[@Ven4t0r]

This was made very well. I love the basic eco theorys!

[@yaoifangirlful]

With this I am definitely gonna pass micro this semester. Thank you for this crash course. It reiterated everything my teacher said but in another perspective which is something I needed.

[@HKaur-io3so]

Thank you- please keep making these great videos. Happy to support.

[@stephanieporter-krahn7560]

This helped me out so much in my Economics class! Thank You!!!

[@elijahdelacruz3204]

2016: “If Apple raises the price of the iPhone to 3,000 dollars, then you might switch to Android” 2018: Apple raises price of iPhone to 1,000 dollars starting price, some Android companies also starting to raise price to 1,000 dollars 2020: 3,000 dollar iPhone (?) 🤔🤔

[@160p2GHz]

If you haven't yet you should watch the next video in this series. It explains exactly why this happens. All Apple has to do is trick people into thinking they have the superior product.

[@CMichaelEH]

I like you two - keep up the good work!

[@cameronkessler1728]

Jacob, you win points for that belt buckle sir! Great episode!!

[@derekcashin1066]

the best video made for us to understand directly. Appreciate it.

[@wadeatkins9031]

Cool lesson:-) I used to be in Macroeconomics in college and we studied a lot about things like this. That was a hard class to completly understand. Glad I finished it:-)

[@JamieTheTroll]

+Wade Atkins You are more likely to learn this in micro.

[@Atilla_the_Fun]

+Wade Atkins College? I studied this in High School.

[@chillsahoy2640]

Co-op games are indeed lame when "game" is a euphemism for the market. But as the prisoner's dilemma illustrates, the best possible global outcome can only result from cooperation (at least, when viewed from a utilitarian perspective). The difficulty, of course, is in giving people a good reason to trust the other party.

[@canopusdincarena]

This channel changed my life. Just love it.

[@gbaca07]

Thanks for making it simple. I like when it is made very simple, so you understand.

[@MrARock001]

"Hear the lamentations of our competition." - Mongol Pizza

[@mikeh5399]

Ideally we would have cheap and high quality phones, computers, and game consoles. Except companies focus more on leaving features out for the next generation and easy breaking products.

[@Luxalpa]

+Mike Hermida Because that makes the companies richer, which in turn allows them to put more money into improving their stuff.

[@mikeh5399]

+Smaug except they don't improve their product. They keep doing the same thing because a company's job is to get really rich, not make a good product

[@Miranox2]

+Mike Hermida It's also the reason why so many games are broken at launch. Companies are big enough that they can test the limits of their clients. They find the perfect spot where a game is cheap to make (broken) but not so cheap that people stop buying it.

[@AntonAdelson]

+Mike Hermida Cheap doesn't mean better. Cheap usually means more pollution and more abuse of the weak factory workers in poor countries.

[@sidimightbe3246]

COD is the perfect example. Gta does the same thing. Assassins, etc

[@wenyizhang]

Thank you! This clarifies a lot!

[@kanuti007]

absolutely informative , very clear

[@JuliusUnique]

I just realized how important Adblock is for me imagine I have to watch an ad everytime I want to watch a youtube-video... wow that would give me high-end-instant-cancer to go

[@John77Doe]

Can you get Adblock for an iPad?

[@JuliusUnique]

John Doe yeah, just google it it's an Addon for your browser idk if there is Adblock for Safari, if not just download chrome or firefox

[@sirBrouwer]

I missed the effect where a bigger company (or one with in a economical group) Can actually lower the price so far that a smaller company will topple over because they can't go under the cost price. Or the bigger one can compete not on the selling site of the game but at the buying site. It can buy in a bigger share of the total amount of a particular vital raw product.

[@Vindignatio]

they talked about predatory pricing in a different video, and this doesnt apply to olygopolies

[@chrisr8808]

Jacob Clifford thank you so much for this videos !!!!! You rock !!!

[@GustavoSilva-ny8jc]

4:45 DAAAAAMN, they were totally outsmarted and played with their instincts and logic. That was brilliant! It appealed to their interesting without them even knowing. What's best it's how this is an obvious integration of many, if not all, of the concepts we learned so far in the series and over the human evolution, most noticebly Tragedy of Common Goods. Thanks to this i learned from a story im tired of hearing.

[@DoeiDenise]

the game theory is so intresting!!

[@cheesegal1206]

I thought this was gonna be a crossover with game theory

[@scarfhead96]

Exactly. Or maybe his caricature to appear. Or the tag line at the end! Ugh. I'm disappointed 😔

[@aliwaleed2004]

+Cheese Gal same here, that's what got me to click on this video

[@Doc_Loc]

r i p g a m e t h e o r y y o u w i l l b e m i s s e d d u h (wait i already made that joke...OH WELL I'LL MAKE IT AGAIN #FREESPIRITTTTT

[@benaaronmusic]

Very interesting. Thanks, Crash Course.

[@kierenmoore3236]

Thanks for this - it really helped me to stabilise and prolong my cartel ... 👍🏼😎👍🏼

[@steviewonder65]

"Anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad or an economist." -- Kenneth E. Boulding

[@ryandooley2589]

I can't believe you didn't do a cross over with Matt Patt from Game Theory.

[@DoubleRBlaxican]

I finally understand game theory, I always thought the prisoner dilemma was a weird way to put it thanks

[@christian.xavier.villagran]

love the ACDC belt, I have a Black Sabbath Belt, but that's besides the point, thanks for the explanation.

[@RentableSocks]

"do you remember the ad before the video" No, there's this thing called adblock.

[@nolanthiessen1073]

+oobligah Thanks for supporting content creators.

[@RentableSocks]

Nolan Thiessen I support content creators. I donate. I would rather not waste my time with an ad that doesn't provide anyone with any value, since I already know youtube ads won't get me to buy anything.

[@abcdefgmusics]

+oobligah Well it does provide someone with value, and that's the creators.

[@RentableSocks]

wealthypersons Hardly. ~$5 for 1000 views is much less money than I donate. If I were to watch the ads, I would not donate. It's a waste of my time, I'd rather donate and give them more money than watching all of their videos' ads would give them.

[@SokarEntertainment]

ACDC Belt. Rock on!

[@Lorobogoro12]

I love the LSP looking stuffed animals that Plait has on his stand

[@TheHaseowerewolf]

one of the best game theory episodes

[@SpoonHurler]

Now I want a slice of Mongol Pizza.

[@Scifiguy11th]

but that's just a theory a GAME THEORY. Thanks for watching.

[@GameTesterBootCamp]

Dat belt buckle!

[@haitham.mohamed]

Fantastic video

[@160p2GHz]

The way Apple convinced so many people its basically equivalent phones (actually less capable, and which admittedly expire forcing you to spend more) are better than Android has always amazed me. That's a good example of differentiating to keep your cost high even though you at many points in time had an inferior product. In this case though I think it has more to do with the competition not being streamlined. One year I'd need the top of the line LG to have something better, the next year I'd need the best Samsung. It was hard to anticipate which would come out on top in the next iteration if you were happy to stick to that OS.

[@saeedbaig4249]

5:00-5:07- How does Phil know that he'll retain all of his old customers? How does he know that he won't lose some of them to Craig? If Craig's customers can walk to Phil, then surely Phil's customers can walk to Craig too.

[@yaraharly3380]

thanks its really useful

[@piccolafamiglia3063]

love your videos!

[@HannesRadke]

Coincidentally I like those "lame Co-Op Games"!

[@theleafthinker3383]

+Hannes Radke Yea, what's wrong with a Pandemic. It's a great game.

[@daddyleon]

+Hannes Radke Coincidentally, I love them

[@dominickmaez4189]

Game Theory??? Where is MatPat???

[@ryanmcclure3749]

+Dominick Maez On his own channel. This is an video about economics and the economic meaning of game theory.

[@cdavid2200]

+Ryan McClure You must be really fun at parties.

[@ryanmcclure3749]

Sorry. Got pissed of at all of the comments being about that.

[@honeydewuwu2055]

Just finished my game theory class yesterday!!!🎉

[@kirantheinvincible628]

Thank you so much

[@manbro3260]

But hey, thats just a theory, AN ECONIMIC THEORY, THANKS FOR WATCHING

[@TheFireflyGrave]

I like co-op games.

[@suleymankhan5298]

love you jacob clifford and scishow

[@mirko7133]

It is very good! keep the good work.

[@rehmsmeyer]

"Unless it's some _lame_ co-op thing..." Hey! CHS is the largest co-op and they resent that statement!

[@rangergxi]

"Do you remember the ad that played before this video" Ha! Haha.

[@Sarah1627]

amazing channel thank you...

[@joshuathacker8470]

The Don Draper quote was absolutely perfect

[@michaelmcdermott4117]

9:06 "unless it's some lame co op thing" *LMAO YOU OBVIOUSLY NEVER PLAYED PORTAL 2*

[@cloudycloudi631]

you could convince me to buy those CC econ jeans. If I had the money

[@Sheeshening]

the sketch with the two bread guys was really funny

[@juanjoselogrono8378]

you guys are the best in the world thank you so much for creat this video.

[@mariopkmnzelda]

I finished all my required economics courses to get my commerce degree last semester, and I'll never have to take econ again. Thank God too because I hated that subject. HOWEVER, the one topic in economics I was actually very interested in was game theory and the prisoner's dilemma, this stuff is just so cool!

[@ZadeWilson]

I mean, that's just a theory. A GAME THEORY

[@muticere]

This is one of your best videos yet. I feel like you used the visual aides more effectively and presented the information more clearly than maybe in other videos.

[@sreeharshaparuchuri6115]

THE ACDC BELT AT 9:07!!! TOTALLY DIG IT

[@the_magisterate]

but hey, that's just a theory....

[@Middle3diddle]

A GAME THEORY!!! Thanks for watching!

[@fununclenerfs]

Ads before KZbin videos? Hehe, that's a good one.

[@nolanthiessen1073]

+fununcle Thank you for supporting independent content creators.

[@bennettsampson5789]

+fununcle Get YT Red if you don't like 'em

[@hrishikeshharathi5912]

you people are awesome!!

[@PizzaShibe]

ACDCLeadership! Sweet! This is good timing, I have an economics exam in June on this stuff. ;_;

[@deancasey8946]

BUT THAT'S JUST A THEORY..... A GAME THEORY! THANKS FOR WATCHING!

[@nolanthiessen1073]

To those people who say "What ad? I use an ad blocker." Here's the link to their Patreon and merchandise pages. If you're not willing to support CC via your time, I hope you're willing to support them via your wallet. www.patreon.com/crashcourse store.dftba.com/collections/crashcourse

[@ianbaker672]

fix the free rider problem or get over it

[@HisDivineShadow]

+Nolan Thiessen Having KZbin Red is a way to avoid the ads and still have the content makers get paid out by their view.

[@RottingDragon]

+His Divine Shadow this true, but they earn way more from a $2 patreon donation than a $10 youtube red subscription

[@GentrifiedPotato]

+Nolan Thiessen I remember when KZbin didn't have ads before and after videos. So long as I have a way to engineer the experience back to those halcyon days, I'm going to do so.

[@henrijsberzins7947]

I dont have ad block and sill dint get an ad

[@Thesimplyawkward]

Thank you!

[@ArtikCouscous]

This is great

[@jackson4901]

But hey, that's just a theory...a GAME THEORY, thanks for watching.

[@alexhenkell-malespin6585]

what kind of a father lets his 7 year old son play call of duty

[@FromThe_6]

Basically every parent cause everyone is stupid these days

[@rudemanthony]

+alex malespin Yeah no kidding!

[@chasfranklin]

+Ethan Buss Or, maybe, you know that your kids are going to be exposed to stuff, so you want to get ahead of the curve and be there to explain things to them. I admit seven seems a bit early, though, to be fair. BTW, saying everyone is stupid these days would include you too, right?

[@rudemanthony]

Charles Franklin Oy vey

[@FromThe_6]

+Charles Franklin I didnt mean everyone literately but I meant that the average person dosnt have very high intelligence. Look at people with Apple computers for instance (thats a joke)

[@TisiphoneSeraph]

I work for one of those "lame coop thing" and its pretty amazing

[@omirapp]

thank you!

[@Seffffffffff]

How many people came to this expecting to see MatPat? ME!!!

[@joecoolmccall]

No MatPat reference? Sort of dropping the ball on that one....

[@adrianh.5038]

Yet again. This IS about economics. Irrelevant, but yet, how could you pass up a perfect opportunity like this?

[@Fomantistoboggan]

+joecoolmccall Right? The dude references crash course more than once.

[@delaneyf1121]

Right? I actually thought this was going to be some weird colab or something

[@asymmetricartist5647]

+joecoolmccall I agree- I thought maybe even some joke about it, but nOPE

[@joecoolmccall]

My thought process is that Crash Course has seemed to missed connecting with part of its target audience. Obviously they are very different topics, but the internet, and KZbin in general, is a pretty small place. Would anyone be surprised if MatPat makes a comment about this video? I wouldn't.

[@salimalriyami5346]

thank you

[@numnumtasty8597]

hey thats just a theory, a game theory thanks for whatching

[@Gguy061]

"MoaR videoos on why cumunism don't not work. Mises for prez 2016." - Internet

[@branuhlig8476]

In the intro describing monopoly and the others you suggested perfect competition was the opposite of monopoly but I would suggest that monopsony would be.

[@Ascend777]

I love Craig and Phil. I MISS CRAIG AND PHIL!!!!!! I love you guys too!

[@elvinestrella5895]

bankrupt? its only a theory..... A GAME THEORY!!!! THANKS FOR READING!