Even though our simple profit maximization model isn't adequate for our study of oligopoly, we still analyize behavior with the assumption that profits are of fundamental importance to firms in the industry. Our predictions of firm behavior will still be based on the idea that profits are the driving motivation for most, if not all, business decisions.
Keep the profit motive in mind in our application of game theory to understanding oligopoly. The term game theory is a bit unfortunate because it sometimes leads to confusion. Everyone knows the object of a game is to win and winning means crushing your opponent. This sometimes leads students to predict the behavior that will lead to the greatest difference in profits between a firm and its competitors. In fact, firms prefer higher profits to lower, regardless of how they rank next to their competitors. It's better to earn $100 million annually when your competitor earns $200 million than it is to earn $5 million when your competitor earns $2 million.
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