The Right Game: Using Game Theory to Shape Strategy - article by A. Brandenburger and B. Nalebuff - blog by Karl Janowski
Two main types of games:
- Structured (rules based)
- Unstructured (open market)
Business is a combo of both.
In unstructured actions you cannot take away more than you bring to the table.
Egocentric – focus on your position in the game
Allocentric – focus on other’s positions in the game
Business strategy is about shaping the game you play as much as playing the game (think of all the companies that have lobbied the government to “change the rules” of the game)
Business is not a war, there are many times you may op for a win-lose strategy but several other companies have made plenty of money working on a win-win strategy.
Three advantages of Win-Win
- More opportunities because less explored
- Easier to get cooperation
- Imitation helps
Value Net – (this sounds a lot like Porter's Five Forces)
- Customers and Suppliers,
- Complementary Products and Substitute Products
Five Elements of Game Theory (PARTS)
- Players
- Added Value – what each player brings to the game
- Rules – how the game is played
- Tactics – moves that shape how one plays the game and perception of the game
- Scope – boundaries that sometimes can be changed
Changing Players – Coke and Pepsi example with Nutrasweet (they created a rival to Nutrasweet just for negotiation purposes, they didn't contract with the rival, the rival should have asked Pepsi and Coke to pay them just for exisiting), Pay me to play
Create Cheap Complements – Software companies that let any company create hardware
Changing Added Value – raise your own value (or protect your current value) or lower others (card match game where you burn matching cards to raise the value of yours - Did I read something similar in a judo-economics article?)
Change Rules – like “one price to all” rule , or have “last bid” clauses in contracts
Tactics: Change Perception – show the effects of a price war by starting a small one to prevent a big one
Change the scope – Nintendo didn’t follow Sega quickly into the 16-bit market so it could prolong its profits in the 8-bit market
Traps to Avoid
- Thinking you can’t change the game
- Thinking your change has to cause a win-lose situation
- Thinking you have to do something that others can’t do
- Failing to see the whole game
- Failing to think you’ll need to change the game again after you’ve done so already
This article was published in Harvard Business Review (R95402).