Final answer:
Game theory involves both exogenous and endogenous relationships, considering external market conditions as well as internal strategies and payoffs, to determine optimal outcomes in strategic interactions.
Step-by-step explanation:
Game theory deals with both exogenous and endogenous relationships. Exogenous factors are external elements that affect a player's decision-making processes, which they cannot control, much like in an oligopoly where a firm's decision is influenced by the actions of competing firms. Endogenous factors, on the other hand, are internal to the strategic interaction within the game, such as the strategies and payoffs of involved players. In game theory, the interaction of exogenous and endogenous factors helps determine the optimal strategies and outcomes for all players involved. For instance, in oligopoly markets, firms must consider not only the market conditions (exogenous) but also the potential reactions of other firms (endogenous) when making strategic decisions.