ABSTRACT
This chapter introduces some of the basic game theoretic approaches used to examine oligopoly behavior. The illustrative games presented in this chapter are played by duopolists. Game theory is the study of how interdependent decision makers make choices. Dell and Gateway compete not only in the current period, but in many future periods as well. By simply continuing to work backward through time, it is obvious that the equilibrium play in every period is the dominant strategy in the last period-low price, low price. It is important, to understand that one of the characteristics of all mixed strategy equilibria is that once the equilibrium is obtained, both players are indifferent between playing their equilibrium strategy and any other strategy. The game tree representation of the game is known as the extensive form of a game. Game theorists distinguish the extensive form of a game from the simpler strategic form of a game.
