The reader familiar with game theory will have noticed that the models discussed in earlier chapters are treated as noncooperative games of strategy, and the reader who is totally unfamiliar with noncooperative game theory will have obtained a lengthy introduction to the subject, together with an application of the topic to oligopoly theory. Game theory has been applied to many areas of economics and used extensively in political science as well. In addition to oligopoly, it has been used in general equilibrium, public goods, voting theory, and committee decision. The role of this chapter is to make the connection explicit between game theory and oligopoly. This is done by providing a brief treatment of noncooperative game theory and then showing explicitly how several of the models of earlier chapters can be viewed as games. Section 9.1 contains a brief general discussion of games and game theory that is intended to set the subject in perspective. Section 9.2 presents a standard model of a noncooperative n-person game, and Section 9.3 connects the model of Section 9.2 directly to some of the oligopoly models of other chapters. Section 9.4 presents an important refinement of the noncooperative equilibrium, called the perfect equilibrium. Section 9.5 has some concluding remarks.

Overview of game theory

Essential features of many games of strategy include the following: (a) There are two or more decision makers, called players. (b) Each player wishes to maximize his own utility, called his payoff.