Game Theory in Industrial Organization

Game theory in industrial organization studies how companies make strategic decisions based on the actions of their competitors. It analyzes situations where firms must anticipate each other's moves, such as pricing, product launches, or advertising. By understanding the potential responses of rivals, firms can better strategize to maximize their profits or market share. This approach helps explain behaviors in competitive markets, such as collusion or price wars, and guides firms in achieving optimal outcomes in their interactions with others in the industry.