too narrow a view of the firm’s behaviour, it is important to address this
criticism. The purpose of this chapter is, therefore, to relax these assumptions
and introduce a broader and more realistic perspective, not just to the analysis
of competition theory, but also to managerial economics in general.
Unfortunately, as happens so often with economic analysis, it also means that
we have to introduce more advanced and complex methods.
Nature and scope of game theory
The essential nature of game theory is that it involves strategic behaviour, which
means interdependent decision-making. We have at this point seen quite a few
examples of situations where such decision-making is involved, particularly in
the areas of the theory of the firm and competition theory.