The Other Game: Noncollusive Oligopoly

Game theory is mainly concerned with prediciting the outcome of ones actions in which there are two pariticipants involved.  People seek to work out the best possible action, taking into consideration the reaction of rivals.  Game Theory was first developed by Economist John Newmann and Oskar Morgenstern in 1940 to analyze strategic behavior.

Game Theory exisits within Canada; our home electricity and gas providers are an example. 

In the Pay Off Matrix there are four possible pay offs, labelled cells A through D.  Cell A shows the result if neither of them cheat and stick to the original agreement.  Cell B shows what will happen if one cheats and the other doesn't.  Cell C shows what happens if the other cheats and one doesn't.  Cell D shows what will happen if they both cheat.

Pay Off Matrix	Sticks to Agreement	Doesn't Stick to Agreement
Sticks to Agreement	Equal results in the market for Company #1 & Company #2	Lower than expected share for Company #1
Doesn't Stick to Agreement	Lower than expected share for company #2	Lower than expected outcome for both company #1 & Company #2

Sayre, John E, Alan Morris J. Principles of Microeconomics, 6th edition. Textbook.