After reading the Wall Street Journal’s article regarding game theory, one realizes that economics has many facets. Game theory is trying to anticipate what the competition will do or is contemplating. (Barnett, 1995). It's really like playing chess. But unlike chess, there will be a winner and loser, you can have win-win and lose-lose situations in business. To avoid having retaliation from the competition, it is best to have those firms in the industry view the actions as beneficial to all, or at least to be nonthreatening. Companies viewing the competitor’s decisions as being in the best interest of the industry will also avoid a costly price war.
Firms can gain great negotiating power if they assess their options. It is better to change the game theory and become the leader than to play the existing game as the follower. This tactic can mean the difference between success and failure for the organization. When making corporate decisions and profit maximizing deals, research and compiling information will be the biggest impact on the firms earnings.
Game theory will allow more cooperation between buyer and seller due to each firm wanting to anticipate their competitor’s reactions and decisions. (Brickley, 2009). As a result, more corporations will use game theory. It will continue to grow due to the added value it brings to the success of businesses today.
No longer can a firm think that business is just about competition. It now must consider retaliation, reaction and long term success in order to beat the competition.
The article explains game theory very well. Check-mate.
Barnett, F. William. Wall Street Journal. Manager’s Journal: Making Game Theory Work in Practice. 1995.
Brickley, J., Smith, C., Zimmerman, J. Managerial Economics and Organizational Architecture, 2009. McGraw-Hill. New York, NY.