The Conventionally Stable Sets in Noncooperative Games With Limited Observations: The Application to Monopoly and Oligopoly

This paper applies the theory of the conventionally stable set to monopolistic and oligopolistic markets. A market model with a finite number of producers and a continuum of buyers is presented and then is formulated as a strategic game in which the producers’ strategies are prices and the buyers’ strategies are demands for commodities. It is shown that a conventionally stable set in this game corresponds to a conventionally stable one in a game where the producers are only players but the buyers are treated as a certain kind of demand function. Furthermore, it is shown that the theory of the conventionally stable set is compatible with the classical monopoly solution, the kinked-demand-curve solution and the leader-follower solution. This new theory makes their structures much more transparent.