ANewViewofBusinessExpressionsborrowedfromthemilitaryandfromsportsNotaboutwinningandlosingNorisitabouthowwellyouplaythegameLanguageDifferenceEssence:Makingsureyou'replayingtherightgameHOW?——GameTheoryGameTheoryCameofAgeJohnvonNeumannOskarMorgenstern1994ProvidedasystematicwaytounderstandthebehaviorofplayersinsituationswheretheirfortunesareinterdependentDefinetwotypesofgames:I.RuleBasedGamesII.FreewheelinggamesFreewheelinggames,playersinteractwithoutanyexternalconstraints.Rule-basedgames,playersinteractaccordingtospecified"rulesofengagement."TwoTypesofGamesTwotypesofgamesBusinessisamixoftwotypesRule-basedGamesTheprinciple:Toeveryaction,thereisareaction

FreewheelingGamesTheprinciple:Youcannottakeawayfromthegamemorethanyoubringtoit

AShiftinPerspectiveEgocentricity–TraditionalperspectiveFocusonone’sownposition.

FudanUniversityAllocentrism–PerspectiveofgametheoryFocusonothersShapingtheGame——GMCaseActivelyshapethegameFudanUniversity

Playthegameyoufind

UsegametheoryMoreprofitGeneralMotorCaseGMCaseBackground:Intheearly1990s,theU.S.automobileindustrywaslockedintoanall-too-familiarmodeofdestructivecompetition.Rebatesanddealerdiscountwereruiningtheindustry.

FudanUniversityWasthereawayout?GM——ShareorConquest?InSep.1992,GMandHouseholdBankissuedanewcreditcard,thatcardholderscouldapply5%oftheirchargestowardbuyingorleasinganewGMcar.

Whathappened?GM——GreatAchievements1.2millionaccounts,onemonthlater8.7millionaccounts,twoyearlater30%ofGM’snonfleetsalesinNorthAmericawillbetocardholdersGMCaseHowdoeswin-windynamicrun?ItreplacedotherincentivesthatGMhadpreviouslyofferedNeteffecthasbeentoraisethepricethatanoncard-holdwouldhavetopayforaGMcarThesepeoplewouldintendtobuyothercars,likeFordThusthisprogramallowFordtoraiseitsprices.ThatallowsGM,inturn,toraiseitspriceswithoutlosingcustomerstoFord.FudanUniversityWhat’stheproblemofimitationfromothers?Don'tworry!ImitationisnotalwaysharmfulImitationhelpGMFordandVolkswagenoffsetthecostoftheircreditcardrebatesbyscalingbackotherincentiveprograms.ThisledaneffectivepriceforGMcustomers,thevastmajorityofwhomdonotparticipateintheFordandVolkswagencreditcardprograms.AdvantagesofWin-winStrategiesFudanUniversityLessresistancetowin-winmovesfromothers,makingthemeasiertoimplementGreaterpotentialforfindingnewopportunitiesThenewgameismoresustainableImitationofawin-winmoveisbeneficial,notharmful“Coopetition”ThinkingaboutbothcooperativeandcompetitivewaystochangethegameItmeanslookingforwin-winaswellaswin-loseopportunitiesFudanUniversityWhat’stheroleofgame-theorymodelsincompetition?PleasefindtheanswerinText2Text(2)CompetitionandGameTheoryClassicaltheoryofperfectcompetitionAdamSmithAlfredMarshallClassicaltheorydepictstheoutcomeofcompetition,butnottheactivityofcompeting.Newgame-theoreticmodelsThistheoryviewcompetitionasaprocessofstrategicdecisionmakingthatisperformedunderuncertainty.Itconsiders“rivalry”and“publicrevelationofprivateinformation”.CompetitioncontPriceitemswhenbuyers’willingnesstopayisunknownBeingasourceofbargainingpower.What’stheroleofgame-theorymodels?Theygenerateanefficientallocationofresources.Theyaddmicrodetailtotheclassicaltheory.HOW?DesigningNewCompetitiveMechanismsUnderstandhowcompetitivemarketsfunctionUsehigh-speedcomputersInventionofNewMarketsGoodsareidiosyncraticanddifferentiatedThereareparticularbuyersandsellersApplicationI:Firmsbuyinputsfromotherfirms.SimultaneousAuctionMechanismProcuringfirm:

Definethecomponentsfinely;

HavethepotentialsuppliersbidcomponentbycomponentsSupplier:

revealitseconomiesofscopebyserofcomponentsforwhichitbid.ApplicationII:SaleofamultidivisionalcorporationAllowbuyerstobiddivisionbydivisionE.g.theFederalCommunicationsCommission’ssectrumlicenseauctions

DesigningNewCompetitiveMechanismsCompetitionRevealsHiddenInformation

Introduction:Independent-private-valuesCaseBUYER:

Competingbiddersattachesadifferent,subjectivevaluetoanitem;

Theyallknowexactlyhowmuchitwouldbeworthtothemselves;

Buttheydon’tknowothers’valuationSELLER:Beingignorantofthebidders’valuationsWhatwillhappen?CompetitionRevealsHiddenInformation

Introduction:Independent-private-valuesCaseBUYER:BiduntilthepricepasseshisorhervaluationSELLER:Thepricegivestheselleranestimateoftheitem’svalueWhenthenumberofbiddersisreasonablylarge,thepricereachedintheauctioncanbeclosetothewinningbidder’svaluationThisisaprocessofrevealinghiddeninformation?CompetitionRevealsHiddenInformationCommon-valuecaseBUYER:valueobjectivelyratherthansubjectivelyItemisworththesamenomatterwhowinsitNooneknowswhatthetruevalueofthisitemThewinnerislikelytobethebidderwhohasmostoverestimatedtheitem’svalue.Whatwillhappen?Evenifnooneknowstheaccuratevalue,thecompetitiveprocessservestoaggregatethescatteredinformationsothatthemarketpriceisamoreaccurateestimateofvaluethanindividual’sAnapplicationiscustomerbiddinginanauc