Game Theory Applications in Business
Game Theory
Orton K.C. Tsun
April 1, 2012
Introduction As individuals, we make decisions throughout the day weighing the cause and effect, cost and benefit, risk and impact of our actions on ourselves and upon others. When taken to a larger scale, as the manager of a team, the CEO of a corporation, or the leader of a nation, the decisions exponentially increase in impact and importance.
Game Theory, the analysis of the concepts used in social reasoning when dealing with situations of conflict (Rubinstein, 1991), is one of many methods used to provide rational strategies towards the making of decisions. Game theory provides logical and mathematical models towards decision-making which are applied to real-life situations such as supply-chain management, capacity planning, and product portfolio management. Taking into account that there are a lot of variables to be considered in International Business, this essay will also analyze some of the inherent flaws if game theory was the only method used towards decision-making as it is applied in International Business.
Article Review
Rubinstein’s interpretation of game theory noted two basic components which are game form and strategy. Game form is described as being the construct and description of a given situation (the rules of a game) while strategy is described as the plan of action within the game which is based on the comprehension of the rules. Applied to a supply-chain management scenario (Esmaeili, 2009), an “interactive game” involving two participants constructed with the objective of determining the identifying the most effective (profit-maximizing) strategy for the business. And of course, this varies depending if you are entering the game as the buyer or the seller. Decision points would be the price the seller charges to the buyer, the size of the order, the selling price charged by the buyer, and the marketing expenditure paid by the buyer. Certain assumptions such as whether you are a
Orton K.C. Tsun
April 1, 2012
Introduction As individuals, we make decisions throughout the day weighing the cause and effect, cost and benefit, risk and impact of our actions on ourselves and upon others. When taken to a larger scale, as the manager of a team, the CEO of a corporation, or the leader of a nation, the decisions exponentially increase in impact and importance.
Game Theory, the analysis of the concepts used in social reasoning when dealing with situations of conflict (Rubinstein, 1991), is one of many methods used to provide rational strategies towards the making of decisions. Game theory provides logical and mathematical models towards decision-making which are applied to real-life situations such as supply-chain management, capacity planning, and product portfolio management. Taking into account that there are a lot of variables to be considered in International Business, this essay will also analyze some of the inherent flaws if game theory was the only method used towards decision-making as it is applied in International Business.
Article Review
Rubinstein’s interpretation of game theory noted two basic components which are game form and strategy. Game form is described as being the construct and description of a given situation (the rules of a game) while strategy is described as the plan of action within the game which is based on the comprehension of the rules. Applied to a supply-chain management scenario (Esmaeili, 2009), an “interactive game” involving two participants constructed with the objective of determining the identifying the most effective (profit-maximizing) strategy for the business. And of course, this varies depending if you are entering the game as the buyer or the seller. Decision points would be the price the seller charges to the buyer, the size of the order, the selling price charged by the buyer, and the marketing expenditure paid by the buyer. Certain assumptions such as whether you are a
References: Ball D.A., Geringer, J.M., Minor M.S., & McNett, J.M. (2010). International Business: The Challenge of Global Competition, 12th Edition Esmaeli, M., Aryanezhad, M., & Zeephongsekui, P. (2009). A game theory approach in seller-buyer supply chain. European Journal of Operational Research, 195 (2), 442-448. Renna, P. & Argoneto, P. (2011). Capacity Sharing in a network of independent factories: A cooperative game theory approach Rubinstein, A. (1991). Comments on the Interpretation of Game Theory. Econometrica, 59 (4), 909-924. Saloner, G. (1991). Modeling, Game Theory, and Strategic Management. Strategic Management Journal, 12, 119-136. Sadeghi, A. & Zandieh, M. (2011). "A game theory-based approach for product portfolio management in a competitive market"