Game Theory and Equilibrium Outcomes Quickmba 2010  Term Paper

Game Theory and Equilibrium Outcomes

QuickMBA (2010) states, "Game theory analyzes strategic interactions in which the outcome of one's choices depends upon the choices of others. For a situation to be considered a game, there must be at least two rational players who take into account one another's actions when formulating their own strategies." Assuming fair competition and antitrust laws are upheld, GE could follow a specific framework or actionable approach to maintaining its market share "when evaluating a situation in which game theory is applicable (QuickMBA, 2010)." According to QuickMBA (2010), GE should:

(1) Define the problem. (2) Identify critical factors.(3) Build a model, such as a bimatrix game (4) Develop intuition by using the model. (5) Formulate a strategy-- cover all possible scenarios.

The bimatrix game model follows.

The data does not convey any definitive conclusions with regard to GE successfully or completely thwarting Maytag's entrance into the market for high efficiency clothes through increasing advertising, as Maytag has a choice to pursue or not pursue the market space. This contingency encompassing Maytag's options indicates that Maytag would still have a choice to enter the market, even if GE implemented a heavy $12 million advertising campaign to block Maytag's entrance into the market. Furthermore, the data does not show whether an attempt by Maytag to enter the market would establish a foundational point that would foster easier access for any successive years.

Under the game theory matrix, GE appears to have the ability to deter Maytag from entering the market. Should GE implement a $12 M. advertising campaign, then Maytag could realize a maximum profit of $1M. In contrast, if GE were to implement a $.7 M. advertising campaign, then Maytag could realize a maximum profit of $15…