Question

Game theory assumes that: Group of answer choices firms anticipate rival firms' decisions when they make their own decisions. firms ignore rival firms' decisions when they make their own decisions. a firm will always follow the pricing strategy of the dominant firm in the industry. markets are contestable because there are no barriers to entry.

Answer 1

firms anticipate rival firms' decisions when they make their own decisions.

Step-by-step explanation:

Game theory assumes that firms anticipate rival firms' decisions when they make their own decisions. It is very important and necessary for understanding firms operating in an oligopolistic market.

An oligopoly can be defined as a market structure comprising of a small number of firms (sellers) offering identical or similar products, wherein none can limit the significant influence of others.

Hence, it is a market structure that is distinguished by several characteristics, one of which is either similar or identical products and dominance by few firms.

This ultimately implies that, under the game theory, when firms makes a decision about their business, it is expected that they consider how the other firms would react to such decisions.