Extensions in Game Theory
The simple game that we have just described helps us understand the
dilemma faced by oligopolists producing identical products, such as steel,
aluminum, cement, and fibre-optic cable. But game theory can also be
used in other settings, such as examining how oligopoists interact when:
they charge different prices for their differentiated products, such as
Nike and Reebok for running shoes, Coke and Pepsi for soft drinks, or
Apple and Acer for laptop computers.
the decision is not about how much to produce or what price to
charge, but rather whether to develop a new product, such as GM’s
and Toyota’s decisions to introduce an electric car, or TD Bank’s and
BMO’s decision to introduce a new form of home mortgage loan.For almost any oligopolistic business decision you can imagine, it is
possible to describe and analyze the firms’ decisions by using game
theory. Sometimes the game and the solution are relatively simple, as in
Figure 11-3. Often, however, the game and solution are much more
complicated. If you take an advanced course in industrial organization
you will encounter some of these situations, but the straightforward
intuition developed in our simple game can nonetheless help explain a
great deal of real-world behaviour.