Game theory is the study of strategic interactions. It is a decision-making tool that business
strategists can use effectively in imperfectly competitive environments. This course
module presents an introduction to game theory and then shows how it is applied to
competitor analysis.
When you have completed this module, you will be able to:
•Explain what is meant by “game theory” and why it is a tool for business strategy
•Relate game theory to the Value Net
•Define “coopetition” and relate it to business strategy
•Explain the role of “complementors”
•Explain why an awareness of your rival’s perspective is valuable in strategy
•Provide an example of a firm that successfully controlled a rival’s actions
Topic 1.1: Introduction to Game Theory
This topic presents an introduction to game theory and explains why game theory is
relevant to business strategy. It defines important concepts such as coopetition and
complementors. This topic is the first step toward understanding game theory in the
context of business strategy.
When you have completed this topic, you will be able to:
•Explain what is meant by “game theory” and why it is a tool for business strategy
•Relate game theory to the Value Net
•Define “coopetition” and relate it to business strategy
•Explain the role of “complementors”
Transcript: Game Theory and Business Strategy
You might be asking yourself: What is game theory? Well, game theory is a tool for
making decisions in strategic environments. Originally, game theory was developed by
mathematicians and economists and applied to a variety of situations, including business,
politics, and war. That might sound pretty heavy, but ultimately game theory is just about
games, and we all know about games. So ultimately it’s going to be fairly easy to
understand what game theory is all about.
In this course, we’re going to focus primarily on a few key aspects of game theory, namely,
the idea that you need to better understand your rivals, and better understand yourself—
and also on the idea that game theory tends to be most valuable in imperfectly competitive
environments. The reason is that in those environments there tends to be a smaller number
of players, and if you can better understand what motivates those players, and better
understand the rules of the game, you have more recourse to shape the game to your
advantage. Ultimately, that is what game theory is about. You want to understand what’s
going on and shape the game in a way that maximizes your own payoffs.
