BUSINESS STRATEGY

Business Strategy

Business Strategy

Introduction

Since in 1994, John Nash, John Harsanyi, and Reinhard Selten were awarded the Nobel Prize in Economics (Crainer, 1996), business people had started to apply the game theory in the business strategy. Some people argued that game theory is well established theory, but it is too hard to use in developing and implementing international business strategy. In the author's opinion, even though game theory has some demerits to apply in the international business strategy, it is still contributed to the international business strategy. This paper will introduce the game theory briefly, describe some disadvantages of game theory to apply in the international business strategy, and then discuss why game theory can develop and implement international business strategy to support author's argument.

Game Theory

"In simple terms, it is a set of complex mathematical formulae that shows how decisions affect each other, by offering a comprehensive explanation of how interdependent individuals, corporations, and governments make strategic choices" (Murdoch, 1999). In the business discipline, game theory deals with how to cooperate and compete with customers, suppliers, complementors and substitutors with profound consideration.

Game theory is based on some hypotheses but in reality, maybe, the conditions of games don't match the hypotheses. For instances, game theory assumes all players are rational and believe others are rational (De Wit and Meyer, 1998). It is almost impossible in every occasion of business game. Additionally, as the number of players increases, the model of game theory becomes more complicated. According to (Crainer, 1996), game theory is most effective in the scenarios where there are only limited players and players behave in rational ways. This can explain why members of Cartel show excessively interest to use game theory. Besides, in game theory, the models, depending on the mathematics and computing, exclude some executives to understand the implications. Finally, in the broader, dynamic international community, compared with domestic market, Multi National Enterprise (MNE) faces more risk. It increases the difficulty to make the right strategy. In short, the strict hypothesis, complexity of models, dependence of mathematics and computing and the context of international business cause that game theory is hard to use in developing and implementing international business strategy.

Game Theory Can Develop International Business Strategy

The Company's Value Net can help managers keen to understand interaction and interdependence of players and it can be the foundation to make right strategy, because by the Value Net, the companies know what kind of game they get involved in, or, know their position and the competition's reaction in the business.

After the executives consider what kind of game they get involved in, they can make the strategy for their target and even change the game. The primary implication of game theory to the business is changing game to make profit. It is very different from traditional opinion (Murdoch, 1999).In the traditional opinion, executives were taught to make the strategies for target within the game rules. Nalebuff and Brandenburger (1997) declaimed that the thinking of traditional strategic approach to business strategy is like "stick to ...