Coopetition Interactive is © 1996 by the Authors.
How much can you hope to get in a game? As we'll see, the answer doesn't
depend just on the size of the pie to be divided, or notions of fairness.
Nor does it depend just on how well you play. What you get depends on your
power in the game as well as on the power of others who have competing claims
on the pie. Power--yours and others'--is determined by the structure of
the game. Game theory shows how to quantify this power.
Game theory began as a branch of applied mathematics. It could be called
the science of strategy. It analyzes situations in which people's fortunes
are interdependent. Game theory provides a systematic way to develop strategies
when one person's fate depends on what other people do.
Game theory sounds tailor-made for the analysis of business strategy. But,
historically, there's been an obstacle preventing the world of business
from embracing game theory. The problem is that academics and businesspeople
speak two different languages: equations versus experience. Many businesspeople
have heard of game theory and suspect that it's a potentially powerful tool.
But all the mathematics can be baffling and stops people from connecting
the theory to practice. At the same time, game theorists are often unfamiliar
with business practice, and some of their theories don't capture reality.
Our experiences in teaching, research, and consulting suggest that communication
between the worlds of game theory and business practice is both possible
and valuable. This book brings theory and practice together.
In this chapter, we explain the fundamental ideas of game theory. In the
rest of the book, we'll focus on the application of game theory to business
strategy. Here, we're laying the foundations, trying to develop a new way
of thinking. To do that, we use some deliberately simple and stylized games
designed to illustrate the basic concepts of game theory. We've left out
the mathematics, but the reasoning still requires close attention. If you,
the reader, invest some time in this chapter, we promise you a big payoff
in the chapters that follow, in which we apply these concepts to analyze
and develop a wide variety of business strategies.