Game theory help managers make better strategic decisions when facing uncertainty of competitive conduct.
it provides a structured process to make better strategic decision, it's not new but now emphasis on as practical tool
What decision we trying to make 1.Define strategic issue How related to other decision made in the market The others in the market consider entering or leaving it Which players' actions most impact on our success 2.Determine the relevant players Strategist must be skilled at predicting future rounds of competitive conduct, we must look forward and reason backward to generate insights how to play current game successfully and define better game to play If we don't change game to gain adv., our competitors will No value in being the best chess player when everyone else is playing checkers No winner-loser but Win-win for suppliers, distributors, goods providers HW manufacturer economic incentives of SW producers to provide consistent with OS
Rules of game to get inside the other players heads (intelligence) to define our biz game
the players objectives not always profit maximizing but market share or growth 3.Identify each player's strategic objectives if we enter with wrong assumes, would suffer unexpected losses when they slash price to maintain share develop list of potential actions from the others perspective using competitive role playing exercise with external experts and mgmt if isolation who lead, who follow? shot or repeated decision (pricing decision)
4.Identify the potential actions for each player 1. Strategy problems can be modeled as simple, quantifiable games (pricing,capacity, marketing, new-entry, bidding, and contract design problems) 2. Application no need identify unique, robust equilibrium solutions to be valuable tools since process itself forces to think about incentives and likely moves of others, it can generate breakthrough in strategic insight, role playing exercises and discussion...
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