Game Theory & Strategy
Game theory is a tool for understanding
how decisions/actions by players in the
value net affect each other.
- Play out all the actions/reactions into the
future and then reason backward to determine
appropriate actions today (assumes rational
behavior).
The main practical use of game theory is
to help a firm decide when to compete and
when to co-operate.
The Value Net
Customers
Competitors
Company
Suppliers
Complementors
Customers
Toys “R” Us,
Wal-Mart
Competitors
NINTENDO
Complementors
Sony, Microsoft
Acclaim, Electronic
Art (software); Mitsubishi,
Sony, etc. (hardware-TVs)
Suppliers
Ricoh, Sharp (microchips),
Marvel, Disney (game characters)
Complementor
A player is a complementor if customers
value your product more when they have
the other player’s product than when they
have your product alone.
A player is your complementor if it’s more
attractive for a supplier to provide
resources to you when it’s also supplying
the other player than when it’s supplying
you alone.
Competitor
A player is your competitor (substitutor) if
customers value your product less when
they have the other player’s product than
when they have your product alone.
A player is your competitor if it’s less
attractive for a supplier to provide
resources to you when it’s also supplying
the other player than when it’s supplying
you alone.
Changing PARTS of the “Game” to Add/Capture Value
Players: customers, suppliers, substitutors
(competitors), complementors, you (e.g., HSC asking
for pmt to play)
Added Values: what each player brings to the game—
raise your value added (e.g., TWA Comfort Class)
Rules: give structure to the game. Laws, customs,
practicality, contracts. Using and revising rules to
enhance the game. (e.g., MCC clauses)
Tactics: moves used to shape the way players
perceive the game and hence how they play. (e.g., IB
fee structure)
Scope: the boundaries of the game. It is possible to
expand or shrink the those boundaries. (e.g., multimarket competition)
The Value Net
Horizontal Alliances
Customer
s
Competitors
Company
Complementors
Suppliers
Vertical Alliances