Strategic Games and Game Theory

Strategic games, also known as game theory, involve individuals or entities making decisions while considering the potential choices of others.
This theory helps individuals anticipate others' actions and respond in a way that maximizes their benefit.
Requires strategic thinking, which involves planning, evaluating risks, and making calculated decisions to improve or maintain positioning.

Players: The individuals or entities participating in the game.
Strategies: The different actions that each player can take.
Payoff: The outcome or reward that each player receives based on their chosen strategy and the strategies of other players.

Competitive Advantage: Understanding competitor actions and adapting strategies to gain a competitive edge.
Knowing When to Peak: Anticipating market trends and maximizing profits by strategically choosing the right time to make decisions.
Better Pricing Strategies and Decision-Making: Developing effective pricing models by understanding the potential reactions of competitors and consumers.
Cooperation and Negotiation: Analyzing the potential benefits of collaboration and negotiation to achieve better outcomes.
Risk Control/Management: Identifying and mitigating potential risks by understanding the potential consequences of different decisions.

Players move in a specific order, with each player observing the previous player's moves.
Examples include decision trees.

A situation where no player can improve their outcome by unilaterally changing their strategy, given the strategies of the other players.
Players have no incentive to deviate from their current strategy.
Every player gets the outcome they desire.
To test if Nash Equilibrium exists, reveal each player's strategy to the other players. If no one changes their strategy, the Nash Equilibrium is proven.
Nash Equilibrium also refers to the no regrets equilibrium, where a player's chosen strategy is the best response to the other players' strategies.

Product Release Timing in the Technology Industry
Advertising Allocation in Rival Companies
Pricing in the Airline Industry
War, particularly the dispute between China and the Philippines concerning the South China Sea.

A strategy that is always the best choice for a player, regardless of the other players' actions.
Best response to all possible actions of the opponent.

A classic game theory model where two individuals, acting in their own self-interest, may end up with a worse outcome than if they had cooperated.
Optimum reward occurs when both parties choose to cooperate.
It can lead to suboptimal outcomes if parties act in their self-interest.
Developed by RAND Corporation mathematicians Merrill Flood and Melvin Dresher during the Cold War.

Both companies could choose to advertise heavily or not advertise at all.
If both companies advertise, they both spend a lot of money, but their market share remains the same.
If one company advertises and the other doesn't, the advertising company gains market share.
If neither company advertises, they both save money, but their market share stays the same.

A pricing strategy where products are sold at different prices based on demand and the willingness of consumers to pay.
Can be beneficial for competition but creates a worse situation if many competitors use it.
Degrees of price discrimination:
- 1st degree: Charging each customer the maximum price they are willing to pay.
- 2nd degree: Charging different prices based on the quantity purchased.
- 3rd degree: Charging different prices to different groups of customers.

Two companies can choose to advertise or not advertise.
If both companies advertise, they both incur high costs, but their market share stays the same.
If one company advertises and the other doesn't, the advertising company gains market share while the other loses.
If neither company advertises, they both save money.
Examples:
- Fast food advertising: McDonald's and Burger King.

A situation where one individual benefits from the efforts of others without contributing themselves.
Example: Workplace teams.

Transition from suboptimal equilibrium to a cooperative outcome.
Strategies:
- Develop long-run strategies that change the game's structure.
- Examples:
  - Soft drinks: Companies focus on differentiation and brand loyalty.
  - Tobacco Industry: Banning cigarette advertising.

Game of Chicken: Two players engage in a confrontational situation, each refusing to back down.
Shrinking/Monitoring Game: A game between a principal (employer) and an agent (employee), where the agent can choose to work or shrink, and the principal can choose to monitor or not monitor.
Dating Game: A scenario where a couple needs to decide where to go, with both wanting to make the other happy.

Negotiation and communication between two or more parties to reach a mutually acceptable agreement.
Example: 2023 United Auto Workers (UAW) strike against major U.S. auto manufacturers.

Union's Decision (Top of the tree): Presents initial demands.
Management's Decision (branching from Union's Low Offer): Responds to the union's low offer.
Management's Offer (continuing from Reject Low Offer): Makes a counter-offer after rejecting the union's low offer.
Union's Decision (after Management's Low Offer): Considers the management's low offer and potentially makes a counter-offer or accepts.
Commitment and Lockout: Management may implement a lockout if negotiations fail or the union rejects an offer.