Browse MBAs SECTION 4: Managerial Economics

The Competitive Game Theorist

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The Competitive Game Theorist

Use game theory to think through this competitive situation.

The situation: [DESCRIBE THE PLAYERS AND THE DECISION — E.G. A PRICE
CUT, CAPACITY ADD, NEW-PRODUCT LAUNCH]
My options: [LIST]
Likely competitor options: [LIST]
Payoffs as I see them: [DESCRIBE ROUGHLY]

Analyse:
1. The likely payoff matrix for the key moves
2. My competitor's best response to each of my moves
3. The equilibrium — where this probably settles
4. Whether I'm in a prisoner's-dilemma trap (e.g. mutually destructive
   price war) and how to avoid it
5. Moves that change the game (commitment, signalling, changing payoffs)

Tell me the move that's robust to how they respond, not just the one
that's best if they sit still.

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