## The Game Theory Techniques Are Used To Find The Equilibrium Of A Market

The Game Theory Techniques Are Used To Find The Equilibrium Of A Market.. The game theory techniques are used to find the equilibrium of a market. Game theory refers to the ways in which strategic interactions among economic agents produce outcomes with respect to the preferences (or utilities) of those agents, where the outcomes in question might have been intended by none of the agents. . . 1. Introduction The market structure identifies how a market works in terms of the number of the firms engaged in, the nature of the produced product, efficiency of firm etc. There are many forms of market structure and the most revealed is Oligopoly. In oligopolistic markets, there always remain a struggle between self interest and cooperation. If the output is limited by all the firms, the price becomes high, but it implies that then output will be expanded because of firm’s incentive to do that. The analysis through Game theory is directly relevant to the behaviour of businesses in oligopolistic markets. The decisions taken using the theory about the self interest and cooperation decide the investment and spending of the firms. Conventional economics describes the operation of mature & established markets, but it throws no light on people’s creativity in finding new ways of interacting with one another. The economics of markets is dynamic and evolving. . The innovation continues and nothing is taken given. In the rapidly and free-form transforming marketplace, game theory is the kernel of a new economics. . . 2. The Oligopoly The main characteristics of an oligopoly market are: o There are few firms to compete in. It may happen that a large number of firms are there but two very big manufacturers dominate the industry. o The Concentration Ratio of the market sales is in the hand of those two producers. If they account for 90% ratio of share of market sales in the industry it is called a 2 firm concentration ratio of 90%. The airlines industry is a good example of it. o The larger of the two firms has Price leadership that is followed by smaller firm o Collusion Potential o Interdependence between firms—Behaviour is affected by actions of rivals o Goods manufactured may be either highly differentiated or homogeneous o loyalty against brand & branding may cause a potential source of advantage o Cournot Model suggest equilibrium in long run cause normal profits...