Final answer:
Game theory helps determine oligopolists' pricing strategies, production levels, advertising campaigns, and market share by analyzing strategies under mutual interdependency, often illustrated by the Prisoner's Dilemma in business contexts.
Step-by-step explanation:
Game theory can be used to determine a range of behaviors of oligopolists, including 1) their pricing strategies, 2) their production levels, 3) their advertising campaigns, and 4) their market share. Oligopolies are markets where a few large firms have most of the sales in an industry, often leading to situations of mutual interdependence where decisions by one firm affect the others. This indeterminate environment makes game theory a useful tool, as it helps to analyze strategic decision-making when firms are interdependent.
The classic illustration of game theory in oligopolies is the Prisoner's Dilemma, where two individuals acting in their self-interest do not produce the optimal outcome. This concept can be translated into an oligopolistic context; despite the potential benefits of collusion to act like a monopoly, each firm faces the temptation to increase production to gain market share, which could lead all firms to earn zero economic profits as in a perfectly competitive market. Game theory in business helps to understand these strategic moves and counter-moves among competing firms.