Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization

Abstract

Game theory has had a deep impact on the theory of industrial organization, in a similar (but less controversial) way as the rational expectations revolution in macroeconomics. The reason it has been embraced by a majority of researchers in the field is that it imposes some discipline on theoretical thinking. It forces economists to clearly specify the strategic variables, their timing, and the information structure faced by firms. As is often the case in economics, the researcher learns as much from constructing the model (the extensive form) as from

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