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Teaching Resources
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EconActive Solutions (CNN News Questions)
Chapter 16: Sega: ol1m02v1
- What characteristics of the video game industry make it a good example of oligopoly?
- Use game theory to explain why Sega decreased the prices of its games.
Answers:
- The industry is dominated by a few firms, Sega, Nintendo, and Sony, that produce similar, but not identical products. The firms are interdependent, i.e., the behavior of one firm influences the actions of the others.
- Sega had to decrease the price of its games in order to gain market shares from its rivals, Nintendo and Sony, whose games sold for lower prices. If one oligopoly firm lowers prices, others must follow or risk losing market share to the low-price competitor. A lower price leading to a larger market share is probably the dominant strategy for all three companies.
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