Game Theory Does Explains Market Term Paper

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c) Mutual Interdependence: This assumption is based on the relationship between two or more individuals where one person depends upon the other for economic interest or benefit. When making a decision one has to consider the effect of his or her decision to the partner. This is common in the Perfect competition -- pure market phenomenon.

With the assumptions above the game theory helps in developing a perfect competition among the consumers.

Goal theory in perfect competition market

It tends to describe market structure based on assumptions which are non-existent, most market systems are imperfect, however the long run and short run situations can help in holding the assumption to be true based on the equilibrium, price and output.

Basic assumptions required for conditions of pure competition to exist as below;

Many small firms: Each producer producing a significant percentage in the total output in the market hence has no ruling in the market prices.

Many individual buyers, there exists no monopoly power: Perfect freedom of entry and exit by the firms with the application of the game theory it ensures that all firms attain maximum required profits in the long run.

Homogeneous products: these are similar product in the market and with the application of the game theory there can be coming up of perfect substitute products hence one firm winning advantage over the other.

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Monopolistic market structure: In the game theory an individual participates directly in a market system in management of the firm and the decisions of the firm on price determination and production hence the advantage of the other. In order to maximize profit the game theory allows for arrangement of different prices to the buyers but through various activities like advertisements branding and personal selling which enables the organization to win advantage over the other.

3. Monophony.

This is the market structure where the consumption is done by only single consumer the game theory then will allow the upcoming of another consumer thus leading to consumption competition in the market.

Conclusion

The Game theory in the market trends ideally deals with trying to accurately predict the outcome of the strategy game in a market place where the participants don't have any information about the intentions or the moves of the other individual or market player. The game theory also has a small number of players such that the decision of one player can change or determine the direction of the market trend and the price in the markets as indicated above......

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