Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Economics
Game Theory
Game theory is a model that can be used to examine and explain the way that different actors in a given situation may choose to act and develop strategy, using a mathematic approach. The model looks at how players will make decisions which will be based on both the firms own position and resources as well as the way their competitors are or are expected to act. Game theory can therefore be used to help try and identify the optimal course of action (McEachern, 2009).
There are many scenarios where Game Theory will be useful; in the commercial environment game theory is most applicable in oligopoly situations
To consider the application of the theory the concept needs to be described. The situation examined is a game. For there to be a game players are required; these are the firms (Nellis and Parker, 2006). For a game to commence there need to be at least two players making decision which will impact on each other. Each set of decision made by the players is referred to as the payoff (McEachern, 2009). An effective way of examining game theory is to look at an example and the way decision impact on the different players. A good example may be the airline industry, where there are only a limited number of airlines travelling each route.
In this example there will...
It is assumed they are both flying the same route. Airline A wants to increase their profit, as they know that the passengers like the loyalty program they are considering increasing their investment. Enhancing the loyalty program will increase costs, but the firm also believes that this will also attract more customers, which will create more profit. Therefore, the decision to be made is whether or not to invest in a loyalty scheme.
If Airline A invests in their loyalty scheme it is likely they will gain more business, which will result in Airline B. loosing passengers. If this occurs Airline B. is then likely to invest in their own loyalty program to try and regain the lost customers from Airline A. The net result may be that both airlines have increased their costs by investing in the loyalty schemes, but do not have a net gain, as they have both followed the same strategy.
In game theory there is the ability to look forward at the way the game will play out, in stages, and determine the potential net result (Nellis and Parker, 2006). In this scenario it may be argued that the best course of action would be for the two airlines to reach an agreement where they can protect their profits and avoid wasteful spending. In this case the airlines…
References
McEachern, W.A., (2009), Micro 2 ECON, South Western College
Nellis JG, Parker D, (2006), Principles of the Business Economics, London, Prentice Hall.
However, its use is not limited to these situations
Game theory is a critical form of decision making that is used in various subjects like economy and political science. Its relevance is becoming prominent in the success rates that have come out in gambling and sports betting. The theory is basically an amalgamation of different models of cooperation and conflict between various decision makers (Myerson, 1991) Thus, it can be safely stated that the theory itself is not just
Game Theory: Galatasaray "What economists call game theory psychologists call the theory of social situations, which is an accurate description of what game theory is about. Although game theory is relevant to parlor games such as poker or bridge, most research in game theory focuses on how groups of people interact" (Levine, 2013). Game theory is used in a variety of situations and professions where it is imperative to use razor-sharp
They also will exacerbate the deficit and could compromise the economy. There is disagreement over which policy prescription is going to be more likely to damage the economy. The health of the U.S. economy, however, is subject to a lot of variables, and one's own economic situation is only somewhat affected by the state of the U.S. economy. Still, the voter wants to vote in a way that increases
An infinite number of Nash equilibria exist. Given any request, the corresponding strategy of the equilibrium pair simply requests the remainder of the cake. If the first person did not request the entire cake for him or herself, there is a strict Nash equilibrium. If the first player did request the whole cake, the equilibrium is not a strict Nash equilibrium. However, if player 2 makes any nonzero demand, he
Economics The situation in the European air cargo industry bears many hallmarks of a cartel, and this was the finding of the European Commission. The OECD (2002) defines a cartel as "a formal agreement among firms in an oligopolistic industry…on matters such as price, total industry output, market shares, allocation of customers, allocation of territories, bid-rigging, division of profits or the establishment of common sales agencies." The main difference between this
Economics Jim Hargrove, CEO Excess inventory Neptune has over 60 days' worth of inventory and is faced with some interesting solutions to address this issue. This memo will analyze the issue and the proposals put forth by the management team. The memo will conclude with a recommendation for action. New fishing rules and new technology investments have allowed Neptune to take bigger catches. Despite record sales, the company is still accumulating inventory. There are