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Game Theory and its Application in International Trade: Use of Strategic Games in Trade Policy

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  • Vincent Lissu Mughwai

Abstract

The objective of this paper is to analyze the application of game theory in international trade. Given the fact that countries differ with each other in terms of their production capabilities, natural resource endowments, levels of technological innovation and so forth, game theory can be used as one of the tools in resource allocation. Theoretic games models assume that players in international trade are rational actors who make rational decisions something that is contrary to the reality. Typically, actors in the international trade are comprised of self-interested individuals whose decisions are not necessarily based on rationality. This article argues that even though game theoretic models cannot sufficiently provide answers to all economic problems, its applications are essential in resolving complex issues in bargaining, resource allocation and strategic decision-making in international trade.

Suggested Citation

  • Vincent Lissu Mughwai, 2020. "Game Theory and its Application in International Trade: Use of Strategic Games in Trade Policy," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(2), pages 96-101, June.
    • Handle: RePEc:khe:scajes:v:6:y:2020:i:2:p:96-101
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    References listed on IDEAS

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    2. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-144, Fall.
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    More about this item

    Keywords

    Game theory; international trade; mixed strategy; prisoner’s dilemma; nash equilibrium;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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