Aperfectly competitive firm is no required to pay attention to thedecision that is made by other firms doing business in the sameindustry (Dodo, 2010). This is because the decision of other firms inthe industry does not influence the decision that is to be made byanother firm in the industry. For example, in case a firm operatingin the perfect competition market decides to increase or lower pricefor its products, this decision would not affect other firmsoperating in the industry. This is so because in a perfectcompetition market, an individual firm is perceived to be too smallto be in a position to influence decisions of other firms since thefirms are not interdependent. Instead of a perfectly competitive firmpaying attention to the decisions of other firms, it reflexivelyaccepts the existing market price.
Gametheory views competition as a strategic decision making process undersituations of uncertainty (Zandieh, 2011). Thus, a model of gametheory depicts individuals and firms being engaged in competition.Hence, game theory can be applied in a market where there areuncertainties and competition is seen as a necessary aspect (Oziegbe,2011). When it comes to perfect competition, there is neglect ofcompetition for instance, there is public revealing of privateinformation. Competition is critical since it helps firms in settingprice for their products when the willingness of the buyers in notknown. It is not valid to apply game theory to the analysis oforganizational strategy involving a perfectly competitive marketsince there are no uncertainties in the perfect competition market.Besides, firms in perfect competition market are not interdependentimplying that a decision made by one firm does not affect anotherfirm in the industry. Thus, the application of game theory is notvalid.
Dodo,J. T. (2010). Perfect competition and sustainability: a brief note.InternationalJournal of Social Economics,Vol. 37 Issue: 5, pp.384 – 390.
Oziegbe,A.O. (2011). Application of Game Theory to Business strategy inUndeveloped Countries: A Case for Nigeria. Journalof Social Science,27(1) 1-5.
Zandieh,M.S. (2011). A game theory-based model for product portfoliomanagement in a competitive market. ExpertSystems with Applications,Vol. 38, 19-7923.