Game Theory for Business: Overcoming Rivals and Gaining Advantage
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Game Theory: Overcoming Rivals and Gaining Advantage An eCornell webinar with Prof. Justin Johnson, Associate Professor of Economics
description
The application of game theory in business is a natural, as it serves to answer the central question “What are my opponents thinking and what is their next move?” Chess masters know how to think a few moves ahead, and put themselves in the shoes of their rival. The game theory approach in business can give you a clear advantage and position you for growth in highly competitive markets. In this one-hour webinar, you’ll learn to: Get inside the motivations and strategies of your rivals Exploit their weaknesses and bring more value to your business proposition Identify concepts for maximizing the size of the piece of the pie you grab in business dealings This discussion is tailored for CEOs, execs, VPs, upper-level management and anyone involved in competitive analysis and overall business strategy. About Prof. Johnson Prof. Justin Johnson received his PhD from MIT and is an associate professor of economics at the Samuel Curtis Johnson Graduate School of Management at Cornell University. He has written extensively on real-world applications of economics and game theory, teaches in Cornell’s Executive MBA program, and is the faculty author of eCornell’s online certificate program Business Strategy: Achieving Competitive Advantage.
Transcript of Game Theory for Business: Overcoming Rivals and Gaining Advantage
Game Theory: Overcoming Rivals and Gaining Advantage
An eCornell webinar with Prof. Justin Johnson,Associate Professor of Economics
Today’s flow:
1. Poll questions2. Presentation3. Q & A
What is Game Theory?
A tool for understanding and influencing your
environment
A simple goal: increase your payoff
A few key ideas: “Complementors” and competition
Power at the bargaining table does not just come
from how big you can make “the pie”
Understanding your rivals—today’s focus!
Understanding other Players You need to understand what motivates others
Understanding other players let you:
Predict what they are more likely to do
Influence what they are likely to do
Secure better outcomes for yourself
The Importance of Understanding Others
The less-than-load (LTL) trucking
industry in 2001 LTL players provide small shipment
capabilities—much needed at the time
Recent consolidation and investment
had made future prospects look good
Significant entry barriers compared to
full-load
LTL looked good—until someone
entered
The Importance of Understanding Others
In 2006, Collins and Aikman (C&A) stopped
delivering parts for Ford’s hot Fusion
automobile
Ford threatened litigation, but soon rewarded
C&A with a more lucrative contract
Why did this happen?
C&A understood game theory better than
Ford
Questions for Competitor Analysis
What do other players want? Money? Fame? To be the biggest?
How do they believe they can achieve it? What is their view of the world and how it works?
What resources do they have? What are they capable of?
What do they think you might do?
Being the Biggest In 2012, GM regained the mantle of global
market share leader
In the past they did this by cutting prices on
cars so much they were unprofitable
Former VP Bob Lutz: “There is absolutely nothing to be gained by being the world’s biggest. I tried to tell them…but they just couldn’t do it.”
Being the Biggest
It’s not just GM that wants to be the biggest
Toyota has made this its goal in the past
Airbus has accused Boeing of risking industry
profits by trying to be the biggest
What do you do if your rival wants to be the
biggest (even at the expense of profits)?
vs.
In 2005, eBay made a move against Craigslist
What does eBay see when it looks at
Craigslist?
What might have been eBay’s plan?
But…what does Craigslist see when it looks at
eBay?
How Others See You Just as important as understanding
others is understanding how others see you
What strategic posture are you projecting in
your market?
Are you the tough player?
Are you the non-threatening player?
Are you the team player?
How Others See You
Will being the “tough” player work for you? Microsoft and Intel in the 1990s pulled it off, and
Apple did more recently
But can you do that?
Maybe a different posture is better for you
Either way, know that the actions you take
today influence how other players see you
tomorrow
Back to Bob Lutz: Being the Biggest
Maybe Bob Lutz has it wrong?
How might rivals behave differently if they
thought you were focused on being #1?
Recap: Understand Your Rivals
What motivates them?
How do they think they an achieve their
goals?
What are they capable of?
What do they think you will do?
Consider these questions when making your
own strategic moves
Recap: Understand How Your Rivals See You
Every action you take contributes to your
“strategic image/posture”
How your rivals see you influences how they
react
Think carefully about how your moves today’s
influence how your rivals see you tomorrow
We’ve Just Scratched the Surface
There’s much more to Game Theory and
Business Strategy
If you’re interested, consider my eCornell
Series entitled Business Strategy:
Achieving Competitive Advantage.
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