Overview
Game theory is a vital tool for understanding strategic interactions in economics, particularly in oligopolistic markets where a few firms dominate. It helps analyze how these firms make decisions based on the actions of their competitors, leading to outcomes like collusion or price wars. Concepts l...
Key Terms
Example: Game theory helps predict outcomes in competitive markets.
Example: The smartphone market is an oligopoly with major players like Apple and Samsung.
Example: In a pricing game, if both firms set prices at $10, neither benefits from changing their price.
Example: Firms may collude to set prices for a product above market levels.
Example: A company with significant market power can set prices higher than competitors.
Example: Two firms deciding whether to lower prices or maintain them.