Game Theory

The study of how people behave in strategic situations. An understanding of game theory helps firms in an oligopoly maximize profit.

Oligopolies are interdependent since they have to anticipate and react to the decision of competitors.
In an Oligopoly, pricing and output decisions must be strategic as to avoid economic losses.
Game theory helps determine the best strategy.

For example:

Note

In this situation, the Nash Equilibrium would be "Low" for both Alpha and Beta.

Sometimes the strategy for a firm is the same, regardless of what their opponent.
This is called Dominant Strategy

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