When making a decision one has to consider the effect of his or her decision to the partner. This is common in the Perfect competition -- pure market phenomenon.
With the assumptions above the game theory helps in developing a perfect competition among the consumers.
Goal theory in perfect competition market
It tends to describe market structure based on assumptions which are non-existent, most market systems are imperfect, however the long run and short run situations can help in holding the assumption to be true based on the equilibrium, price and output.
Basic assumptions required for conditions of pure competition to exist as below;
Many small firms: Each producer producing a significant percentage in the total output in the market hence has no ruling in the market prices.
Many individual buyers, there exists no monopoly power: Perfect freedom of entry and exit by the firms with the application of the game theory it ensures that all firms attain maximum required profits in the long run.
Homogeneous products: these are similar product in the market and with the application of the game theory there can be coming up of perfect substitute products hence one firm winning advantage over the other.
Monopolistic market structure: In the game theory an individual participates directly in a market system in management of the firm and the decisions of the firm on price determination and production hence the advantage of the other. In order to maximize...
Game theory is a concept that entails formal study of cooperation, conflict and actions taken up by several interdependent agents. Game theory as a concept lays down the structure that facilitates through analysis an understanding of the strategic choices agents adopt[footnoteRef:1]. The earliest conceptualization of game theory is by Cournot in 1838 where the analysis sought to clarify choices and actions taken in a duopolistic market [footnoteRef:2]. Over the years,
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Game Theory and Equilibrium Outcomes QuickMBA (2010) states, "Game theory analyzes strategic interactions in which the outcome of one's choices depends upon the choices of others. For a situation to be considered a game, there must be at least two rational players who take into account one another's actions when formulating their own strategies." Assuming fair competition and antitrust laws are upheld, GE could follow a specific framework or actionable approach
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