Game Theory u2s6.3 p78

Today I have been...

Reading about Game Theory

Why?

Required

So What?

Remember that if you are planning to enter a market, your expectations of how existing players will react could form an entry barrier in itself? It is important to consider how your strategy will impact on your competitors, and how they will respond.

Two types of game

1. Players interact according to specific game rules (agreements, contracts etc)
2. Players interact with no rules (no holds barred!)

Doing business is a complicated combination of both types.

Examples of this theory include the classic prisoners' dilemma, and the value net model.

Game theory is essentially about the interactions between the players. These interactions can be serial or parallel, sequential or simultaneous. With simultaneous maneuvering you have to imagine how the other player is playing, while you consider your moves! Putting yourself in the mind of the other players is called allocentrism.


Ways of resolving the prisoner dilemma:-

Taking advantage of ongoing relationships
Changing Payoffs
Changing the nature of the game

The Value Net is a way to examine all the interdependencies in the game, and therefore ways to change the nature of the game or the players taking part. Brandenburger and Nalebuff (1995).

Vertical axis: organisation's customers
Horizontal axis: players who we interact with but do not transact with (substituters & complementers)

At any one time, you will be attempting to build long-term value-generating relationships with some market participants whilst simultaneously targeting others for your short term gains.
A lot depends on the industry structure. Not all industries offer much scope for bountiful co-operative relationships. Some offer this in spades.