Game Theory

Game Theory is about the selection of a strategy given the likely conflict of interest between two or more decision makers. If the sum of gains and losses is '0' this is referred to as a zero sum game. Usually competition in a business context is not likely a zero sum game as advertisements and competition can increase the total market.

Game Theory studies the interaction when individuals are aware of their decisions of others.

The value of a game can increase by:

• Adding an extra buyer, see theCellular phone case
• Adding a second (or third) supplier, see the Monsanto Nutrasweet case
• ,see the Nintento case

Key learning points for game theory:

1. Seek a dominant strategy:
   1. Always expect rivals to play a dominant strategy
2. If no dominant strategy exists:
   1. Issue is whether to deny or signal relevant information
3. Dynamic games of incomplete information
   1. Bring to the fore asymmetric information, signalling and learning;
4. If rival signals a threat,
   1. Always believe if implementation is credible
5. Credibility:
   1. Derives from rival's actions that suggest thread will be carried out.

Part of: M7-Quantitative Decision Methods-S5 - Game Theory See also: Game Theory Training Yale