This shift of perspective is the first of the two key innovations which free us from the kinds of problems which cause such disappointment in the area during the late 1980s. A second fundamental idea that deserves mention here relates to the fact that game theory has proved to be a much more flexible and powerful device in the IO field than might have been expected. Economists working in the field of IO have always seen the strategic interactions between large firms in the market as an important part of the story they wanted to tell, but they have never seen it as the whole story. The reason for this is that it has always been apparent that some of the most striking statistical phenomena that we find in the area appear to be driven not by strategic interactions but rather by simple independence effects. Most markets, as conventionally defined, consist of a number of more or less independent submarkets.
Strategic interactions are very important within any individual submarket.
The nice surprise, from the point of view of game theorists, is that game theory has turned out to be a wonderfully flexible device in allowing us to mesh together the role of strategic interactions within individual submarkets and the play of independent effects across submarkets. Surprisingly, it is when the theory is extended to incorporate such symmetry restrictions that we obtain the sharpest and most successful quantitative predictions. All in all, game theory is at last coming into its own in the field of Industrial Organization. The recent developments in the area throw up an interesting new agenda both for theorists and applied economists. It seems likely that this field will continue to be one of the most fruitful fields for applications of game theoretic methods over the next decade.