Oskar Morgenstern, “Foreword” (1959)

Oskar Morgenstern’s foreword introduces Martin Shubik’s work on market strategy as an advance in both economic analysis and game theory. Its central claim is that oligopoly exposes a conceptual inadequacy in conventional economics: firms act under conditions shaped by other purposive actors, not simply under constraints within which they can independently maximize. Game theory promises to make this interdependence the foundation of economic explanation. Moving from a historical diagnosis to a methodological argument and then to an appraisal of Shubik’s contribution, Morgenstern presents the book as evidence that greater realism and greater theoretical unity can develop together.

The historical opening acknowledges the ingenuity of Cournot, Edgeworth, Bertrand, and subsequent theorists of monopoly and monopolistic competition. Yet repeated attention from distinguished economists has not yielded a unified treatment of strategic markets. The proliferation of ingenious cases is, for Morgenstern, evidence of the limits of an inherited conceptual framework:

There is an elaborate set-up of clever casuistry with seemingly endless additions of new and interesting cases. What is lacking is the central idea, the development of truly general principles.

The objection concerns more than incompleteness. Without a governing principle, it remains uncertain whether the existing cases have even been formulated in ways that permit their eventual integration. Unification may therefore require stepping outside the concepts responsible for the impasse. Morgenstern briefly allows that free competition and oligopolistic behavior might prove irreducibly different, but insists that contemporary theory has neither established this necessity nor indicated a convincing route beyond it. This qualification makes game theory a proposed conceptual breakthrough rather than the inevitable completion of established economics.

The decisive move is to distinguish strategic interaction from an ordinary maximum problem. An economic outcome depends not only on an agent’s actions and chance but also on others’ actions, which may oppose or reinforce the first agent’s purposes:

Stating it differently: firms and individuals are not in control of all variables on which the result or “payoff” depends.

For Morgenstern, this is not merely an additional complication within familiar optimization. In an oligopoly, the absence of unilateral control means that the maximum problem itself is wrongly conceived. Game theory supplies a different conceptual and mathematical structure for analyzing such situations. He emphasizes its applicability across market structures, its understood logical properties, and its openness to computation and numerical analysis. Its attraction lies in combining a general representation of economic interaction with methods capable of investigating particular outcomes.

Cooperation is as fundamental to this reconstruction as conflict. Participants may form profitable arrangements, with or without side payments, so a large population of market actors does not necessarily eliminate the strategic problems associated with small numbers:

Hence big numbers of participants even in large markets do not always become effective; when there is an advantage in combining, coalitions will form, and the difficulties residing with small numbers will come again to the fore.

This argument reverses the conventional ordering of economic theory. Free competition, understood as a situation in which each participant faces fixed conditions, becomes a limiting case rather than the principal model. Oligopoly and related market forms should instead provide the starting point for inquiries into prices, rational firm behavior, and output. Morgenstern’s criticism of general-equilibrium theory is consequently both empirical and conceptual: its privileged competitive setting is insufficiently representative, while its framework fails to place strategic dependence at the center of analysis.

The foreword then distinguishes genuine applications of game theory from a change in terminology. Although a substantial mathematical literature has developed since Theory of Games and Economic Behavior, economic applications require further theoretical work and sometimes new empirical descriptions. Existing accounts of market behavior already embody traditional categories and may omit precisely the features strategic analysis needs:

This, fortunately, makes it difficult merely to translate current views into a game theoretical terminology. Such translations would clearly not constitute true applications.

The word “fortunately” makes the obstacle productive: resistance to straightforward translation forces researchers to reformulate their problems. Morgenstern values Shubik’s work because it undertakes this task. Established questions receive fresh game-theoretical formulations, their solutions are compared with earlier answers, and new problems of market strategy are investigated through both static and dynamic approaches.

His appraisal highlights initial assets, barriers to entry, the preservation or destruction of assets in competitive struggle, and the availability and cost of market information. These are consequential determinants of strategic possibility, not incidental additions to a simplified model. The investigation of games of ruin exemplifies how bringing neglected economic circumstances into view can also require advances in game theory itself. Morgenstern thus presents application and theoretical development as mutually sustaining. The foreword closes by treating a theory’s capacity to stimulate further research as a test of its vitality: Shubik’s achievement matters both for its findings and for the new inquiries it makes possible.