- Game theory is the study of decision-making in situations where
strategic interaction (moves and countermoves) between rivals occurs.
- each oligopolist has to consider the potential responses of rivals when formulating price or output strategies.
- the strategic option each oligopolist confronts are summarized in Table 25.4
- the payoff to an oligopolist’s price cut depends on how its rivals respond.
- if a firm does not reduce its price, it cannot increase profits.
- the collective interests of the oligopoly are protected if
no one cuts the market price, but an individual oligopolist
could lose if it holds the line on price when rivals reduce
- risk assessment is the foundation of game theory