What is Game Theory?
Game Theory is a method of studying strategic situations.
So what is a strategic situation?
Well, let’s start with what’s not a strategic situation.E.g. firms working in perfect competitions. They are price takers; they don’t particularhave to worry about the actions of their competitors. You also see firms like monopolist. Monopolists【垄断企业】 don’t have any competitors to worry about, so that’s not a particularly strategic situation. They are not price takers but they take the demand curve. Everything in between is strategic. So everything that constitutes imperfect competition is a strategic setting.
Thinking about the motor industry; the motorcar industry. Ford has to worry about what GM is doing and what Toyota is doing. So there are small number of firms their actions affect each other. Literal definition for what strategic means is that it is a setting where the outcomes that affect you depend on actions not just your own but on actions of others.