American Eagle Outfitters - 1

Topics: Game theory, Nash equilibrium, Perfect competition Pages: 3 (895 words) Published: October 25, 2012
One possible application of Game Theory is in advertising. Advertising involves the promotion of products so as to show the product to a greater number of people. The goal of advertising is to make more people aware of a company’s product so t hat more people would avail of this product or service, and this would mean more revenues for the company.

One way that American Eagle Outfitters can approach this goal is to expand the current market of consumers. This will need directing promotional activities to consumers who have never tried the clothes. Another way is to target the current market in the hopes of increasing market share. This means that there is a base of consumers currently wearing the clothes, but there are other companies such as Old Navy, Abercrombie & Fitch, offering the same kind of clothes, and the companies would like to increase the percentage of people get benefit from their particular company’s clothes. This is the case where game theory is applicable. There are other entities that a company such as GAP or Aeropostale can be considered as a competitor. The company competes with these entities for a share of the clothes retail market. These entities include other companies who produce the same kind of clothes. Other potential competitors are companies that produce substitutes or complements to the clothes, new entrants to the clothes retail industry, suppliers of the company, and distributors of the company.

Game theory deals with competitive situations such as these above and emphasizes the decision making process of the competitors. The strategy that American Eagle Outfitters will use is composed of the decisions that it will make at every stage of the process. In the case of advertising, the American Eagle Outfitters must decide how much to spend in a certain area. For example, the overall goal of using game theory in advertising is to determine how best to spend advertising money in order to capture market share from other...
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