| Course | BUS 540 Managerial Economics |
|---|---|
| Module | Module 5 |
| Paper type | Oligopoly and game theory analysis |
| Length | About 1,149 words, 7 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for BUS 540 Module 5
Two Plants, One City and a Price War Nobody Wins: Oligopoly and Game Theory in the Ready-Mix Concrete Business
Student Name
MBA Program, Aspen University
BUS 540: Managerial Economics
Instructor Name
Month Day, Year
Two Plants, One City and a Price War Nobody Wins: Oligopoly and Game Theory in the Ready-Mix Concrete Business
Northern Plains Ready-Mix, a composite company, operates one of the two concrete batch plants serving a city of about 75,000 in North Dakota. Ready-mix concrete must be poured within about an hour or two of mixing, so plants serve only nearby customers, and a supplier from another city cannot compete. For years the two local suppliers priced concrete at about $165 a cubic yard. Last spring the rival cut its price to $145 to win a large school project, Northern Plains matched, and both have kept prices at $145 since. Volumes have barely changed, but both firms' profits have fallen sharply. This paper analyzes the situation with oligopoly theory and game theory.
An Oligopoly
An oligopoly is a market with a few sellers whose decisions affect one another, often protected by barriers to entry (Baye & Prince, 2022). Concrete in this city fits the definition. Two plants share the market, and building a third would require a large investment in a plant and a fleet of mixer trucks for a market that cannot support more capacity. Most important, each supplier's profit depends on the other's price, so each must anticipate the other's response.
Pricing as a Game
The pricing decision can be modeled as a game with two players, each choosing between holding the normal price of $165 or cutting to $145. Monthly profits, estimated from each firm's costs and volumes, are shown below, with Northern Plains' profit listed first.
If the rival holds its price, Northern Plains earns more by cutting, $120,000 rather than $80,000, because it wins most of the large contractor jobs. If the rival cuts, Northern Plains also earns more by cutting, $30,000 rather than $10,000. Cutting is therefore a dominant strategy for Northern Plains, and by symmetry for the rival. Both cut, and each earns $30,000, far less than the $80,000 each would earn if both held. This is the prisoner's dilemma: individually rational choices produce a worse outcome for both.
| Northern Plains' choice | Rival holds $165 | Rival cuts to $145 |
|---|---|---|
| Hold $165 | $80,000 and $80,000 | $10,000 and $120,000 |
| Cut to $145 | $120,000 and $10,000 | $30,000 and $30,000 |
Why the Rival Cut First
The rival's original cut made sense from its own point of view. The school project was the largest job of the year, about 9,000 cubic yards, and winning it filled the rival's trucks for months. What the rival may not have anticipated is that Northern Plains would match the lower price on every job rather than only on large ones, turning a one-time bid into a citywide price. Many price wars begin this way: a targeted cut is read by the rival as a general change in strategy, and the response spreads the cut to the whole market.
Repeated Play
The two firms do not play once; they face each other every week, on every bid. Repeated games can change outcomes. Axelrod (1984) invited experts to submit strategies for a repeated prisoner's dilemma played in computer tournaments. The winner was tit-for-tat, which cooperates on the first round and then copies whatever the other player did on the previous round. Axelrod found that successful strategies were nice, never cheating first; retaliatory, responding to cheating; forgiving, returning to cooperation after the rival does; and clear, so the rival could recognize the pattern. In repeated play, cooperation can emerge without any agreement, because each player knows that cutting today invites cutting tomorrow.
Where the Law Draws the Line
The repeated game suggests why prices might drift back up, but it also marks a legal boundary. Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits contracts, combinations and conspiracies in restraint of trade, and agreements among competitors to fix, raise or stabilize prices are illegal. Northern Plains may not call its rival to propose ending the price war, signal intentions through private communication or agree to divide customers. Each firm must set its prices independently. Nothing here substitutes for counsel; Northern Plains should have its attorney review any practice that touches its competitor.
Changing the Game
Brandenburger and Nalebuff (1995) argued that managers should not only play the game they find but change it. Their framework identifies five elements to change: the players, the added value each brings, the rules, the tactics or perceptions, and the scope of the game. Northern Plains has lawful options under several of these.
Added value: Northern Plains can make its concrete harder to substitute by offering services the rival does not, such as decorative colored and stamped concrete, a mix designed for cold-weather pours that North Dakota builders need in spring and fall, and guaranteed delivery windows backed by GPS truck tracking. These raise the payoff to its customers of choosing Northern Plains even at a higher price.
Rules: Annual supply contracts with homebuilders and contractors at fixed prices, with volume commitments, would remove much of the business from bid-by-bid price competition. A customer with a contract is no longer part of the weekly game.
Scope: Northern Plains can expand into concrete block, precast products or aggregate supply, where competition differs, reducing its dependence on ready-mix price.
How the Rival May Respond
The rival may copy these moves, particularly contracts. That is not necessarily bad for Northern Plains: if both firms move customers to contracts and compete on service, the weekly price war loses its fuel. The rival may also respond to Northern Plains holding its price on uncontracted jobs by continuing to cut; Northern Plains should then decide job by job, recognizing that price cuts on small jobs bring little volume.
The Cost of Continuing the War
If nothing changes, both firms will continue earning about $30,000 a month instead of $80,000, a combined loss of about $1.2 million a year compared with prewar pricing. Neither firm can afford to replace mixer trucks on that margin indefinitely. That pressure gives each firm a reason to look for lawful ways out, which is why changing the game is more promising than waiting.
Recommendation
Northern Plains should, within the next two months, offer annual contracts to its 20 largest customers at $158 a cubic yard with guaranteed delivery windows; launch the cold-weather mix and colored concrete service with a premium of $12 to $25 a yard; and set prices for uncontracted work independently, based on its own costs and demand, without discussing prices with the rival.
Conclusion
The price war is a textbook prisoner's dilemma: each supplier gained by cutting price, so both did, and both earn less. Repeated play and Axelrod's findings explain why prices may stabilize over time, but the law forbids any agreement to make that happen. Brandenburger and Nalebuff's advice to change the game points to lawful strategies, contracts, differentiated services and broader scope, that improve Northern Plains' position without relying on its rival's restraint.
References
Axelrod, R. (1984). The evolution of cooperation. Basic Books.
Baye, M. R., & Prince, J. T. (2022). Managerial economics and business strategy (10th ed.). McGraw Hill.
Brandenburger, A. M., & Nalebuff, B. J. (1995). The right game: Use game theory to shape strategy. Harvard Business Review, 73(4), 57-71.
Sherman Antitrust Act, 15 U.S.C. § 1 (1890).
Reading the BUS 540 Module 5 assignment instructions
When only a handful of sellers share a market, each one's best move depends on the others', and this part of BUS 540 has students model that interdependence, often as a game. Follow the Module 5 instructions in your classroom; this example analyzes one competitive situation. Describe the market and why it is an oligopoly, with few sellers and interdependent decisions. Model a key decision as a game, with players, strategies and payoffs, and find the equilibrium. Explain whether the game is played once or repeatedly and why that matters. Use research on strategic behavior. Address legal limits on how rivals may interact. Recommend strategies that improve the firm's position within those limits, and explain how the rival is likely to respond.
Inside the BUS 540 Module 5 example
The paper opens with Northern Plains Ready-Mix and its rival, which together supply nearly all concrete in a city where trucks cannot haul concrete more than about an hour before it sets. Baye and Prince's text supplies the features of oligopoly. A two-by-two payoff matrix uses monthly profit at a normal price of $165 a cubic yard and a cut price of $145, showing that cutting is each firm's dominant strategy and that mutual cutting leaves both earning $30,000 a month instead of $80,000. Axelrod's book reports that tit-for-tat, a strategy of cooperating first and then mirroring the rival, did well in repeated tournaments. Brandenburger and Nalebuff's framework of players, added values, rules, tactics and scope supports changing the game. A section on the Sherman Act explains why the firms may not agree on prices. Strategies include contracts with builders and a color concrete service.
Where the marks sit in the BUS 540 Module 5 rubric
Game theory papers in an MBA economics course are marked on correct modeling, accurate identification of equilibrium, insight about repeated interaction and realistic, lawful recommendations. This example sets out players, strategies and payoffs in a matrix the grader can check, and it explains why mutual price cutting is a dominant strategy equilibrium even though both firms would prefer to hold prices. Axelrod's The Evolution of Cooperation supplies evidence on repeated games, and Brandenburger and Nalebuff's Harvard Business Review article shifts the analysis from playing the game to changing it. Baye and Prince's text supplies the oligopoly framework. The section on the Sherman Act shows awareness that tacit and explicit collusion differ legally and that agreements on price are illegal, and the recommendations stay on the right side of that line.
BUS 540 Module 5 help: mistakes that cost marks
The most common error in Module 5 is setting up a payoff matrix incorrectly, with payoffs that do not match the story or an equilibrium identified without checking each player's best response. Check each cell. Another is recommending that rivals cooperate on price, which in the United States can be a crime if it involves any agreement. Focus instead on lawful strategies that change payoffs, such as differentiation, long-term contracts or capacity choices. Explain whether the game is repeated and how that changes behavior. Consider how the rival will respond to your recommendation. Use research on strategy rather than intuition alone. Remind the reader that a company's own antitrust lawyer, not a course paper, decides what contact with a rival is safe.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
More BUS 540 and MBA sample papers
- BUS 540 Module 1: Economics and Decisions
- BUS 540 Module 2: Demand and Elasticity
- BUS 540 Module 3: Production and Cost
- BUS 540 Module 4: Competition and Monopoly
- BUS 540 Module 6: Pricing Strategies
- BUS 540 Module 7: Decisions Under Risk
- BUS 540 Module 8: Government, Markets and the Firm
- BUS 551 Module 4: Capital Structure
- BUS 799 Module 8: Final Capstone Presentation
- BUS 530 Module 7: Communication and Metrics
- BUS 532 Module 2: The Health Care Marketplace
BUS 540 Module 5 questions, answered
What does BUS 540 Module 5 usually ask for?
Aspen's BUS 540 covers oligopoly and strategic behavior in this module, so analyzing interaction among a few rivals, often with a game theory model, is typical. Check your classroom prompt.
What is the prisoner's dilemma in pricing?
A situation in which each firm gains by cutting price no matter what its rival does, so both cut and both earn less than if they had held prices.
What is a dominant strategy?
A strategy that gives a player a better payoff than any alternative regardless of what the other player chooses.
Where can I find a free BUS 540 Module 5 sample paper?
The full analysis is posted above: two ready-mix concrete suppliers in a price war, with a payoff matrix, repeated games, Brandenburger and Nalebuff's framework and lawful strategies.
Is it legal for competitors to agree not to cut prices?
No. Agreements among competitors to fix or stabilize prices violate the Sherman Act; firms must set prices independently.