Game theory is useful for understanding oligopoly behavior because:
A) there are so many firms in an oligopoly that all are price takers.
B) firms must differentiate their products if they are to remain in business.
C) firms recognize that because there are only a few firms mutual interdependence is important.
D) without it firms would not be able to maintain cartel agreements.
E) it allows firms to develop greater monopoly power.

Question

Quizplus · Accepted Answer

Game theory is particularly useful for understanding oligopoly behavior because in an oligopoly market structure, the actions of one firm depend on the reactions of other firms. The firms recognize that because there are only a few players in the market, mutual interdependence is important. Game theory helps to analyze the strategic behavior of firms in such interdependent situations.

Game Theory Is Useful for Understanding Oligopoly Behavior Because