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Payoff Interdependency

Is where the payoffs acruing to each action for players' involved in a game are dependant on the actions of the other players' in the game. for example a firm deciding to set its price must take into account the price reactions of all other related firms in the market until they can analyse the profit that will result from this price change. This is why game theory is so crucial to analysing how oligopoly markets work - as these markets have a high degree of interdependency.

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