Exercise 8-1: Defining Oligopoly and Game Theory

Oligopoly is a type of market where only few large firms can exist with are involved in non price competition. New firms rarely enter the market. Each firm has significant control over price. Monopolistic market can only have one firm that has control over price, product that is "unique" and other firms cannot enter this market. In perfect competition there are many firms that do not have control over price, have identical product and new firms can easily enter the market. In monopolistic competition market there are many firms with differentiated product, they have low level of control over price and it is easy for new firms to enter the market.
As a customer I would prefer monopolistic competition market because they have differentiated products and low control over price. The knowledge that I have now doesn't change much in my purchasing habits. I have preferences that I would not change. But the fact, that monopolies have price discrimination, will stop me next time when I will look at new TV sets.
Game theory explains how rivals seek for a best solution for the situation considering reactions of a rival. They can come to an agreement on how to divide the market and both have same benefits or they can cheat on each other making more that competitor for a while. This can go back and forth but if they stick to an agreement - they both make profits.
Cartel actions occur when few oligopoly firms agree to divide the market ans stick to the price. But they will only work to the advantage of their members if there will be no cheating. There are other forms of collusive actions: dividing market geographically, by existing client lists or controlling output.