Game Theory has been likened to that of a poker game, where you are constantly judging your opponent's next move, trying to determine the various outcomes of the hand based on cues and the cards that have already been drawn.
The concept of game theory was developed by economists John Neumann and Oskar Morgenstern in the 1940s to analyze strategic behaviour. In a market, collusion exists when suppliers choose to cooperate with each other in order to achieve maximum profitable outcomes in business ventures by setting the price of a product or the quantities that each will produce. Collusion is illegal and banned in most countries. The term "cartel" refers to the formal agreement of cooperation among the firms. (Sayre, E. John, Morris, J. Alan, Principles of Microeconomics, ed. 6, pg. 387 and 390)
Below is an example of the payoff matrix, which provides a visual depiction of the results of two firms operating in collusion, and the subsequent advantages and disadvantages of each firm going against each other to obtain a competitive advantage over the other.
In the current economy there is evidence of game theory everywhere! Have you ever made a purchase and been asked for your postal code? Even that simple act is being used to gauge who shops at a specific store, the date, time and cost of the purchase --- assisting with the anticipation of your next move.
Another excellent source on game theory is located here: http://plato.stanford.edu/entries/game-theory/#Neuro as well as an article written describing the role of game theory in the realm of supermarkets here: http://ageconsearch.umn.edu/bitstream/20108/1/sp04ju01.pdf
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