Game Theory and Business World

The mathematician John von Neumann and the economist Oskar Morgenstern in 1944 proposed the revolutionary Game Theory. Game Theory helps to know about how interactions between players of the game and choices each player makes lead to different outcomes of the game.  In the 1990s Adam Brandeburg and Barry Nalebuff professors in economics at Harvard and Yale University and specialist in the field of Game theory, developed their Co-Opetition model. The Co-Opetition model highlights the opportunity cost of switching over between coordination and cooperation in business world. Cooperation is required to enhance market growth by all the players and competition is required to differentiate and capture the highest market share. The new term introduced by them was “Value Net”. The value net can be used to identify and categorize the current players in the game, making strategy to bring more players in the game and diluting the power of a leading market player. The major players each firm has to face in business world are:

  1. Customers for whom firms produce their goods and services (for example FMCG sector) and the firm in the market which can connect to the consumers (Patanjali) can become leader by capturing higher market share. Patanjali, which is expanding its product portfolio and diversifying at such a pace, has changed the rule of the game.
  2. Suppliers are the players who supply resources to the firm. The packing companies like Essel Propak, Manjushree Technopack and Dynaflex are gaining business with expansion of Patanajli product category in the market despite slowdown of other leading FMCG category products.
  3. Competitors: The competitors’ are from customer’s perspective and supplier’s perspective. From customer’s perspective Patanjali‘s products are worth value for money. The increasing demand by consumers to express their commitment to Indian product along with low prices has further accelerated the market share of Patanajli products amongst Indian consumers. Hence HUL and Dabur and all other competitors ‘product become substitute for Indian consumer.

From supplier’s perspective, supplying its resources to Patanjali is higher profit generating then to other firms in FMCG market which are losing their market share. The supplier’s preference depends on quality, quantity and price. These three variables are governed by customer’s perspective.

  1. Complementors: Complementors are products or services that are in alignment with competitors’. Like HUL and others are looking for diversifying in Ayurveda product category, as Patanajli has created new appetite amongst Indian consumers for Ayurveda products.

The competitors can enhance their market share by extending its business to other games when it adds value to the other game and increases its profitability. The best example is revival of HUL product Ayush and Dabur’s strategy to introduce new category of Ayurveda products to its portfolio.

This is how we at JIMS help our students to understand difficult concept of Game theory in Economics Class.

By Dr. Neelam Tandon

Associate Professor

JIMS Kalkaji

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