Exploring A New Style Of Game Theory Model Could Help Analyze Monopolies
Primary Source: https://www.businessnewsdaily.com/2405-real-cost-walmart.html
Large retail corporations have in the past been accused on exacting a kind of predatory lower pricing by which they intentionally price their goods lower than their competitors when entering a new region, perhaps accruing lower or negative margins for a time, in order to displace local competitors, so that in the long term they can raise their prices more easily. This is particularly prevalent in smaller regions, such as small Rural towns with no competitors who can withstand a long period of financial downfall, in which all of the competitors can be enumerated quite easily, and it is very difficult to open up a store due to the high initial costs. This is by no means novel or not known about, but doesn’t fit easily into our definition of the game theoretical model, where firms want to charge the highest price they can get away with.
But, what if, we could instead build into our model the reward which a firm receives not just from its own success, but in competition constrained environments, the utility it gets for having its competitors suffer? Indeed, a large corporation would indeed forsake some portion of a dollar to see their competitors lose a dollar, so perhaps by modifying the value to not just a static value on each item sold, but also to include the value gained per unit deprived from their competitors, we can begin to model these kind of situations in a more accurate light. Obviously, no firm would ever put their prices so low that they are truly running a negative margin intentionally, so we can gather that what is really happening is that although they are running a negative financial margin, but gaining more than was lost in terms of utility down the road. Constructing such a model would require an economist and much more sophistication than I am sure to be able to provide, but either way it should be an interesting way to analyze markets with very limited competitors, and could be used to prove in a more mathematical sense the existence of a Monopolistic Power.