THE INDUSTRY ENVIRONMENT

The Industry Environment

The Industry Environment

Overview of the topic

The topic is related with the Industry Environment and the application of the concepts of Game Theory will be discussed in this topic. The US corporation, Microczar and the Chinese Appltree are having competition to develop a new system software for mobile devices. Though, there is room for just one profitable supplier that provide the services for mobile devices. Therefore, the entiee situation of the companies in the industry will be discussed in relation to the Game Theory principles and concepts.

Part A

Creation of Payoff Matrix

Game theory involves studying the occurrence of conflicts and cooperating in such scenarios. The theory is applied when the agents are interdependent on each other where the agents may be individuals, corporations, groups etc. The theory helps in formulating, structuring, analyzing and understanding strategic situations. The following is an example of the payoff matrix for the two companies namely Microczar located in the United States and Appletree from China. They are developing new software for the mobile phones, however only one supplier may be chosen. The diagram of the Payoff Matrix is mentioned in the next page.

Figure 1: Payoff Matrix

Identification and Explanation of Game Equilibrium and Dominant Strategy

There are set of strategies that can be developed for Microczar and Appletree where both of them can get incentives for choosing their course of action. The players must develop mixed strategies for the expected payoff. The players then decide to develop strategies in which both the firms can stay in equilibrium. The possibility is that Microczar shall utilize a dominant strategy of making the software before Appletree to gain a dominant position in the market. The possible game outcome is that Microczar shall be able to gain the larger market share. In the other scenario, if China provides subsidy and financial support to Appletree, Appletree shall be freed from taxes and interests that shall bring about a boost in its net profits changing the pay off matrix eventually.

Explanation of the Prisoner's Dilemma

It is a situation in which the two corporations shall not cooperate, depicting the fact that the two firms are in a prisoner's dilemma.

Part B

Detailed description of the Industry

According to the research conducted by Mintel in August 2012, for the companies producing breakfast cereals, it has been identified that the business or the industry environment consists of many external factors that have a major impact on the decisions, performance level and outcomes of the corporation. A business usually analyses all of these external factors before it enters into the market or commences its operations (MBA Strategy, 2003). The external factors are screened systematically, and those factors are chosen that are cost effective. This is only possible in the presence of a large amount of information. The important stakeholders are customers, suppliers and competitors. The profit of the industry depends on how perfectly the market is operating. It is supposed that what customer pays is usually higher than the cost incurred by the company (Levine, ...