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The ‘Folk Theorem’ and Continuous Reaction Functions: A Synthesis

In: Issues in Contemporary Economics

Author

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  • James W. Friedman

    (University of North Carolina)

Abstract

The theory of games and the theory of oligopoly have a long connection. Cournot (1838) invented the non-co-operative equilibrium in the context of homogeneous products oligopoly. Nash (1951) generalised the Cournot equilibrium, widening its reach to non-co-operative games in general. Game theory deals, in the main, with decision situations in which relatively few agents interact and have their interests at least partly in opposition, making it reasonable that each agent will concern himself with trying to understand the behaviour of each rival agent. Oligopoly is the most obvious context in economics where the same circumstances prevail. Furthermore, game-theoretic thinking entered oligopoly with Cournot, roughly a century before game theory made a good start as a discipline. The non-co-operative equilibrium is often called the Cournot-Nash equilibrium in honour of its parentage.

Suggested Citation

  • James W. Friedman, 1991. "The ‘Folk Theorem’ and Continuous Reaction Functions: A Synthesis," International Economic Association Series, in: Kenneth J. Arrow (ed.), Issues in Contemporary Economics, chapter 9, pages 139-159, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-11573-0_10
    DOI: 10.1007/978-1-349-11573-0_10
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