- EconIssues – Patrick A McNutt



The CV as a filterThe oligopoly games are defined in terms of the sequence of action and reaction moves. In a Sweezy game, for example, a player follows a price decrease but not a price increase. In a Cournot game on quantity the CV = 0 on production, quantity or capacity. In the Bertrand game CV = 0 on price and in a Stackelberg game both players behave as if in a Cournot or Bertrand game with CV = 0. Player A is considering a series of actions and the likely reactions coming from the sum of competitors, B, C and D. Player A has a belief system, and if Player A prosecutes Action 1, Player A believes that only Player B is likely to react. Likewise for Action 2 believing that B and C will react and likewise for Action 3 believing that Player D only will react. By a process of elimination Player A is able to use the CV matrix as a filter to identify Player B as a near rival, that competitor, in the sum of competitors who is more likely to react first across a series of actions in a game.Conjectural Variation MatrixPlayer ACompetitor BCompetitor CCompetitor DNear RivalAction 1Lower priceCV ≠ 0CV = 0CV = 0BAction 2Launch new productCV ≠ 0CV ≠ 0CV = 0B or CAction 3New innovationCV = 0CV = 0CV ≠ 0DIn a what-if scenario, a player should create a CV matrix to allow a filtering of likely competitors into timing of likely reactions. If Player A wishes to avoid Player B in a game, then Player A chooses Action 3. However, in the knowledge that Player B is more likely to react more frequently, then Player A can engage in a vigorous and aggressive Drusian game of action and reaction. A combination of actions, Actions 1 and 2, could be chosen to engage with near rival B. Arch rivals Apple Inc and Google Inc entered a Drusian game in 2012 played across different game dimensions, where actions include ecosystem updates, social media and mobile advertising competition. No one strategy is strictly dominant for either player as the optimal strategy for either Apple Inc or Google Inc really depends on what each player believes to be the strategy of the other player. ................
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