Abstract
We have already noted that when a firm is planning its future strategy it must make allowances for the response of its competitors to any action which it takes. A strategy must therefore include not merely a set of opening moves but also further sets of counter moves which can be brought into play in order to redirect the firm towards the attainment of its original objectives after competitors have responded to its opening gambit. It is evident however that a similar line of reasoning can also be applied to each of its competitors since each of them in turn will need to develop a strategy which makes allowances for various alternative opening and counter moves by all other firms within the market.
The original exposition of this theory is to be found in J. von Neumann and O. Morgenstern, Theory of Games and Economic Behaviour.
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Notes and References
See, for example, D. K. Osborne, American Economic Review (1971) p. 538.
For further analysis of the prisoner’s dilemma see, for example, L. B. Lave, Behavioural Science (Jan 1965);
A. Rapoport and C. Orwant, Behavioural Science (Jan 1962); and
R. Weil, Behavioural Science (May 1966).
L. Fouraker and S. Siegel, Bargaining Behaviour (New York: McGraw-Hill, 1963).
Much the same conclusion is drawn by J. W. Friedman, Yale Economic Essays (autumn 1963).
J. W. Friedman, Econometrica (July–Oct 1967).
See J. W. Friedman, Review of Economic Studies (Oct 1969) for a discussion and critique of a number of important experiments.
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© 1976 P. J. Curwen
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Curwen, P.J. (1976). The Theory of Games. In: The Theory of the Firm. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-15645-0_9
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