Game Theory and Competitive Strategy

Game theory can be used by management to gain a better conceptual understanding of decision-making in competitive situations. Outcomes of various possible marketing strategies can be represented in game matrices, and preferred solutions can be determined under a number of different behavioral assumptions. For example, game theory has been applied to issues of pricing and advertising decision making.

Because game theory analysis requires making assumptions about players' behavioral intentions, the most useful insights into players' strategies and counterstrategies will be obtained when the rules and results of the game-matrix solution incorporate information about industry behavior gained from other sources.

While game theory can help indicate the outcomes of different strategic choices, it is not likely to yield precise solutions to marketing problems. The models require selecting the appropriate set of decision variables or options available, the set of possible outcomes, and the assumed objectives of all firms involved. The uncertainty inherent in each of these measures limits precision, as does the level of complexity involved in representing the decisions faced by all competitors simultaneously.

Chapters like Utility Theory;Consumer Behavior;Revealed Preference;Decision Making Process and Decision Models, lead you to the models development and the understanding of agents decision behavior.