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Operation Research

Game theory analyzes competitive situations between two or more players, where each player adopts strategies to maximize their own outcome given the opponent's strategies. In a business context, game theory can help firms determine the best course of action considering the anticipated countermoves of competitors. It assumes players choose strategies simultaneously without knowing the other's choice, and the outcome provides payments to each player that can be positive, negative, or zero. Managerial problems where game theory can be applied include analyzing long-term market strategies, evaluating new product responses, resolving conflicts between groups, and examining competitive environments.

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22 views2 pages

Operation Research

Game theory analyzes competitive situations between two or more players, where each player adopts strategies to maximize their own outcome given the opponent's strategies. In a business context, game theory can help firms determine the best course of action considering the anticipated countermoves of competitors. It assumes players choose strategies simultaneously without knowing the other's choice, and the outcome provides payments to each player that can be positive, negative, or zero. Managerial problems where game theory can be applied include analyzing long-term market strategies, evaluating new product responses, resolving conflicts between groups, and examining competitive environments.

Uploaded by

Parul Khanna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Game Theory

A competitive situation in business can be treated similar to a game. There are two
or more players and each player uses a strategy to out play the opponent.
A strategy is an action plan adopted by a player in-order to counter the other player.
In our of game theory we have two players namely Player A and Player B. The
basic assumption would be that
Player A plays to Maximize profit (offensive) - Maxi (min) criteria
Player B plays to Minimize losses (defensive) - Mini (max) criteria
The Maxi (Min) criteria is that Maximum profit out of minimum possibilities
The Mini (max) criteria is that Minimze losses out of maximum possibilities.
Game theory helps in finding out the best course of action for a firm in view of the

anticipated counter-moves from the competing organizations. A competitive


situation is a competitive game if the following properties hold good:
1. The number of competitors is finite, say N.
2. A finite set of possible courses of action is available to each of the N
competitors.
3. A play of the game results when each competitor selects a course of action from
the set of courses available to him. In game theory we make an important
assumption that all the players select their courses of action simultaneously. As a
result, no competitor will be in a position to know the choices of his competitors.
4. The outcome of a play consists of the particular courses of action chosen by the
individual players. Each outcome leads to a set of payments, one to each player,
which may be either positive, or negative, or zero.
Managerial Applications of the Theory of Games

The techniques of game theory can be effectively applied to various managerial

problems as detailed below:


1. Analysis of the market strategies of a business organization in the long run.
2. Evaluation of the responses of the consumers to a new product.
3. Resolving the conflict between two groups in a business organization.
4. Decision making on the techniques to increase market share.
5. Material procurement process.
6. Decision making for transportation problem.
7. Evaluation of the distribution system.
8. Evaluation of the location of the facilities.
9. Examination of new business ventures and
10. Competitive economic environment.

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