St. Louis Oligopoly Analysis
ECO 152
December 9, 2013
Photo by Christian Gooden, cgooden@post-dispatch.com
St. Louis Christmas Tree Lots: Oligopoly and Game Theory
Since Christmas is drawing near, the annual Christmas tree lots are beginning to open. This brings memories of my father cursing in the car every Sunday before mass because half the church lot is taken up by trees. For a few weeks Ted Drew becomes the king of Christmas not the king of custard in St. Louis. Pretend the image I selected is not taken from the St. Louis Post Dispatch but is in fact my family having a wonderful time together at the St. Peter’s Church Christmas tree lot in Kirkwood. This picture does not exist because our time spent at the Christmas tree lot is usually spent arguing over what tree to choose and ultimately ending in my sister crying because my father says we cannot bring a 30 foot tall tree into our home. The Christmas tree market in St. Louis can be considered an …show more content…
Ted Drewe and Father Smith could do this by making an agreement between their firms to charge the same price or otherwise not to compete. This is an example of collusion, which is against the law in the United States. Here we see the characteristic of rules implemented in game theory. Since the firms cannot collude and set their prices they must guess the price which the other firm will choose. If Ted Drewe thinks that Father Smith will charge $40 per tree at St. Peter’s, he will choose to also sell at $40 per tree because this would earn $7,500 in profit instead of $5,000 if they Ted sold at $50. If Ted Drewe believes Father Smith will sell at $50 per tree, he would still choose to sell at $40 per tree because this would increase total profits from $10,000 to $15,000. This means either way, Ted Drewe will sell at $40 per
December 9, 2013
Photo by Christian Gooden, cgooden@post-dispatch.com
St. Louis Christmas Tree Lots: Oligopoly and Game Theory
Since Christmas is drawing near, the annual Christmas tree lots are beginning to open. This brings memories of my father cursing in the car every Sunday before mass because half the church lot is taken up by trees. For a few weeks Ted Drew becomes the king of Christmas not the king of custard in St. Louis. Pretend the image I selected is not taken from the St. Louis Post Dispatch but is in fact my family having a wonderful time together at the St. Peter’s Church Christmas tree lot in Kirkwood. This picture does not exist because our time spent at the Christmas tree lot is usually spent arguing over what tree to choose and ultimately ending in my sister crying because my father says we cannot bring a 30 foot tall tree into our home. The Christmas tree market in St. Louis can be considered an …show more content…
Ted Drewe and Father Smith could do this by making an agreement between their firms to charge the same price or otherwise not to compete. This is an example of collusion, which is against the law in the United States. Here we see the characteristic of rules implemented in game theory. Since the firms cannot collude and set their prices they must guess the price which the other firm will choose. If Ted Drewe thinks that Father Smith will charge $40 per tree at St. Peter’s, he will choose to also sell at $40 per tree because this would earn $7,500 in profit instead of $5,000 if they Ted sold at $50. If Ted Drewe believes Father Smith will sell at $50 per tree, he would still choose to sell at $40 per tree because this would increase total profits from $10,000 to $15,000. This means either way, Ted Drewe will sell at $40 per