- Game theory develops a framework for analyzing decision making in
such situations where interdependence of firms is considered.
- At least in two-person zero-sum games, game theory outlines a scientific
quantitative technique that can be used by players to arrive at an
optimal strategy.
Limitations
- The assumption that players have the knowledge about their own pay-offs
and pay-offs of others is not practical.
- The techniques of solving games involving mixed strategies particularly
in case of large pay-off matrix is very complicated.
- All the competitive problems cannot be analyzed with the help of
game theory.
This chapter focussed on decision problems characterized by conflict or competition among two or more competitors. For example, advertising strategies, pricing policies, etc. Game theory is used to analyze such competitive situations. Actually, game theory provides the basis for rational decisions and thus improves the decision making process.
You learned several different techniques for solving games such as algebraic method, calculus method, linear programming method, and graphical method. Moreover, we discussed a very important principle, namely, dominance useful for reducing the size of games.
