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Diverse and Global Perspectives on Value Creation Set

coordinated by
Nabyla Daidj

Volume 3

Game Theory Approach to Managerial Strategies and Value Creation

Abdelhakim Hammoudi

Nabyla Daidj



This title is the prolongation of an idea initiated in our 2007 book on the bonds between game theory and strategic management theories [DAI 07]. Thus, the objective was to show how game theory could be useful for a firm engaged in formulating its strategy. The idea was to demonstrate through representative case studies of current issues in strategic management that game theory could be used to:

This first book caused reactions both in the academic world, during conferences, and in the “professional” world, during conventions or during the creation of case studies that began using this procedure. The concepts and tools developed within this first title were inspired by lessons from various courses with students of master’s programs and various professional and academic profiles. The common denominator for this audience is generally the desire to acquire tools that stay relevant to the reality they are attempting to study. A technical presentation of game theory tools to this audience would be counter-productive. It is therefore preferable to work toward making these tools accessible. Managerial techniques need to be supported by real-world applications, but decisions must also be restructured around new methods of analysis. Game theory responds to the required intellectualization of real-world analysis provided that the primary lessons fit in with the reflexive tradition of strategic management theory.

Both the first and current study respect that philosophy through the association of two authors whose experiences and careers are different yet complementary. The first among them is an industrial economist, specialized in applied game theory (to various industries including agri-food), who, for a long time, focused on useable formulations of concepts of game theory for operational use. The second author is a strategic management specialist experienced in the analysis of themes from various sectors. Her expertise connects the more classic methods of her field with an openness to original methods of game theory.

This sort of pedagogical procedure, appearing in the first book, was presented and “tested” among different audiences and feedback has been positive overall.

These different elements encouraged us to develop this approach, especially considering that, since 2007, there has been an increasing interest in game theory explained by the changing and uncertain context and climate which businesses are developing in. This increased interest, beyond being a temporary trend, demonstrates the necessity of research tools capable of structuring this philosophy in contexts of interaction so complex that traditional tools prove to be insufficient.

A number of blogs, consultancy firms such as Capgemini (Box I.1) as well as various companies such as Orange (Box I.2), openly refer to game theory as a potential tool to help decision-making at a managerial level.

Oderanti and de Wilde [ODE 10] highlight how certain business leaders have seized this subject, citing in particular the CEO of Coca-Cola:

“In business games, the firm identifies the moves that the rival could make in response to each of its strategies. The firm can then plan counter-strategies (Griffitts and Wall, 2000). As Doug Ivester, Coca-Cola’s president put it (Himmelweit et al., 2001), ‘I look at the business like a chessboard. You always need to be seeing three, four, five moves ahead; otherwise, your first move can prove fatal’. Game theory helps explore the impact of calculations about future market advantages on a firm’s current market strategies”. [ODE 10]

Since the early 2010s, there have been many references to game theory in relation to predictive analyses in digital transformation. Today, big data, something that is almost a daily headliner (in mainstream, specialist and academic media), refers to the processing of massive quantities of data (data analytics) and the associated predictions. The latter are techniques that rely on statistical tools, the search for correlations and game theory. The objective is to use present and past facts to formulate hypotheses on future events that can be helpful for assessing client risk, among other things (insurance companies, banks). In total, all of these novel tools will have an impact on decision-making and the company’s value creation.

We must therefore look beyond applied game theory’s predictive and decision-making ambition and see it as a “way of thinking”. It allows reasoning in a rigorous frame of context that helps structure strategic considerations. Using its tools grants a better, or at least a different, understanding of interaction situations, going beyond a critical description of the situation parameters. The intellectualization of strategic thought associated with such situations of interdependence opens the way to rich and sometimes counter-intuitive developments of the analysis of concrete cases. We will demonstrate this in a number of examples throughout the book.

“The question is to know what you want from game theory. If it’s a solution, one must be rigorously mathematical. Now, if it is a way of thinking, or as suggested by Schelling, a learning framework, game theory places [the actors] within a context of common interaction […]”. [SCH 08]

But furthermore, this book has another objective: to establish a gateway to the world of research.

Research in formalized economics and/or management (using mathematics) is often unable to unify the process among an uninitiated audience. It must be said that it rarely attempts to. Researchers often speak to researchers. And yet luckily, the issues they set out to study draw substance from real-world questions that the public will understand. But the technical developments that follow break that connection between research and the world of managers and students from non-specialist majors. From there, the second challenge for this book is to contribute to spreading current strategic research. It is a matter of revisiting industrial economics publications (agri-food, media, automotive, etc.) through the prism of applied game theory and extracting their substance: an intellectual procedure that can prove to be important to the structure of strategic considerations. The second part of the book, in particular, responds to that objective.

The book is divided into two parts that can be read independently one from the other. The first theoretical part (Chapters 1–3) recalls the primary concepts and tools of game theory. It integrates a number of examples of games that illustrate “simple” strategic deliberations that companies can experience when faced with various situations. The definitions of key concepts of game theory (equilibriums, caution, etc.) are presented in Appendices 1 and 2 and unfamiliar readers should refer to them to better understand basic concepts. The second part (Chapters 4–7) presents a number of case studies in a number of sectors. These studies are most often extracted from ongoing research studies reviewed and rewritten in a simpler game form.