The combination of system dynamics and game theory in analyzing oligopoly markets

In this paper, we present a hybrid method of game theory and dynamic systems to study the behavior of firms in an oligopoly market. The aim of this study is to build a model for an oligopoly game on the basis of feedback loops and system dynamics approach and to solve the resulted problems under some special conditions where traditional game theory methods are unable to handle. The method includes a combination of qualitative methods including interviews with industry experts to prepare the model and quantitative methods of system dynamics, simulation methodologies and game theory. The results indicate that competitive behavior and the important parameters such as volume of demand, interest rates and price fluctuation will be stabilized after a transition period.