Game Theory

To analyze strategic interactions more”  economists rely upon a fascinating area of economic theory known as game theory. This is the analysis 01 ” ‘ situations involving two or more interacting makers who have conflicting objectives. following findings of game theorists in ‘the area or imperfect competition As the,number of non cooperative oligopolist becomes large. industry price and quantity tend  ward the perfectly competitive outcome. • If firms decide to collude rather than compete. the market price and quantity be close to to generated by a monopoly.

But experiment that the number 01 6, police and the frequency of cheating and non- . cooperative behavior increases. In many situations, there is no stable equilibrium for oligopoly. Strategic interplay may lead to unstable outcomes as firms threaten, bluff, start. price wars, capitulate to stronger firms, punish weak opponents, signal their intentions, or simply exit from the market. The next chapter explores the theory of games in greater depth.

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