Game theory studies strategic interactions where the outcome for each participant depends not only on their own actions but also on the actions of others. It is widely used in economics to analyze competition, bargaining, and decision-making under interdependence.

One of the most famous concepts in game theory is the Nash equilibrium, a situation in which no player can improve their outcome by unilaterally changing their strategy. This concept helps explain why certain inefficient outcomes persist, such as price wars or arms races.

Game theory is applied in oligopoly markets, where a small number of firms dominate. Firms must anticipate rivals’ reactions when setting prices, output levels, or entering new markets. Models like Cournot and Bertrand competition illustrate different strategic behaviors.

Beyond markets, game theory is used in political economy, international relations, and contract design. Voting systems, trade negotiations, and incentive structures can all be analyzed through strategic frameworks.

Despite its usefulness, game theory often relies on strong assumptions about rationality and information. Real-world behavior may deviate from theoretical predictions, but game theory remains a powerful analytical tool.

Game theory studies strategic interactions where the outcome for each participant depends not only on their own actions but also on the actions of others. It is widely used in economics to analyze competition, bargaining, and decision-making under interdependence.

One of the most famous concepts in game theory is the Nash equilibrium, a situation in which no player can improve their outcome by unilaterally changing their strategy. This concept helps explain why certain inefficient outcomes persist, such as price wars or arms races.

Game theory is applied in oligopoly markets, where a small number of firms dominate. Firms must anticipate rivals’ reactions when setting prices, output levels, or entering new markets. Models like Cournot and Bertrand competition illustrate different strategic behaviors.

Beyond markets, game theory is used in political economy, international relations, and contract design. Voting systems, trade negotiations, and incentive structures can all be analyzed through strategic frameworks.

Despite its usefulness, game theory often relies on strong assumptions about rationality and information. Real-world behavior may deviate from theoretical predictions, but game theory remains a powerful analytical tool.