Game theory

Game Theory
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Game Theory
Game theory can help to improve understanding of a company’s competitive external environment. As an interdisciplinary tool that combines aspects of philosophy, mathematics, psychology and other subject areas, game theory offers insight into a range of behavioral relationships to improve logical decision making. This is a useful feature in the business environment, particularly when considering and analyzing the different aspects that characterize a competitive environment. In this case, a compete can use game theory to analyze the pricing and distribution structures of competing companies within the same industry thereby allowing it to introduce a price that would offer a competitive advantage. The same strategy can be used for all measures of competition. For that matter, game theory can introduce a logical thought process that allows the company to achieve greater gain by being contrary to the common interest that would be achieved by working together with the competition. In essence, game theory offers a hypothetical framework of the competitive external environment along with material implications for each decision option that the company can make. For instance, a soda company that seeks to expand its geographical reach will consistently face decisions concerning whether to build new distribution networks in the expansion region, or contract a distributor, or maintain the status quo. The first two decisions can allow the…