In the given course I am doing a comprehensive literature review of ‘cooperative game theory in the field of supply chain management.’ Cooperative game theory comes in nature when more than two parties in the supply chain network come together and form alliances to gain more payoffs as compared to what they were obtaining alone. In the last several decades, supply chain management has evolved to be a very interesting field of research. This field has recognized that the business processes are made of different entities and decentralized players where the strategic operational decision of one player leaves the impact on other player. If one player in the supply chain chooses his strategy then it changes the individual profits of other player as well as the total channel profit. So, here the concept of game theory comes into the picture when the economic variable selected by one player leaves impact on the economic variable of other player. There are two branches of game theory i.e. non cooperative game theory and cooperative game theory. Both are totally different from each other and follow different methodology and theoretical content. According to Aumann (1974) : ‘the game is one ideal and the cooperative and non cooperative approaches are two shadows’ The non cooperative game theory comes when different members of decentralized supply chain take the operational decision for their own benefit by observing the action of other players. So in this way each player observes the action of other player and selects the best action from a given set of strategies to optimize his profit and cost. The cooperative game theory comes in picture when more than two players in the supply chain come together and form alliances to harness maxim... ... middle of paper ... ...e cooperative games lead to specific payoffs. Anupindi et al. (2001) consider a game where multiple retailers stock at their own locations as well as at several centralized warehouses. At the first stage retailer decide the stocking level and at the second stage they decide that how much to transship between warehouse and shop to match demand with supply. Taylor (2001) analyzes games between two firms that pools their investments and capacity to maximize the total value. In the first stage firms choose investment that affects the market size and in the second stage they negotiate over the split of the market and profits Brandenburger and Stuart (2007) proposed a hybrid non cooperative and cooperative game model, which called a biform game. They formalized the notion of business strategy as making moves to try to shape the competitive environment in a favorable way.
Economic Process is a communication process between participants, instead by one person coordinator. All forms of cooperation are needed for research, business, and entertainment. Mutual adjustment is much different from the central adjustment. This is a form of give and take, which social actors adjust and make an impression on other social actors. The achievement organization in properly working economic markets is well balanced in ongoing and distribution of mutual adjustment process, as individual participants both respond to, and effect price signals. The example of mutual adjustment, and an absence of central organizer is a dispatcher, whom sends his taxi drivers to different locations all day, and into the night, while in the comfort of his home. The drivers work together to help the other driver out if they are stuck on a route. Market system requires independence, land, advantage granted, An opportunity for selling or being sold; demand, presentation, someone who organizes and operates a business or businesses, and members of a cooperative enterprise. In order for the market to be successful in competition; sellers, and consumers would be n...
Another factor on the way to success on oligopoly market is understanding and using with advantage the game theory, in particular, prisoner’s dilemma. Game theory, a mathematical approach to strategic behavior, was stated by John von Neumann and Oscar Morgenstern in 1944 (Farris & Happel, 1987, p. 267). Game theory is useful in analyzing the actions in any strategic situation, from a game of chess to the pricing and output decisions of oligopoly firms where firms cooperate or conflict. The classic game is the prisoner’s dilemma:
In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.
The dilemma of collective actions is an objectively existing social phenomenon. Western scholars create theoretical models about dilemma of collective actions and provide theoretical interpretations according to the reflections to the real world. “These collective actions will be problems such as short supply of public goods, overuse of public resource, disorder of public order, loss of public organization efficiency and anomie of public policy implementation.” (Chen tan, 2009, Theoretical Interpretation … under Non-cooperation Game)
Cooperation or collaboration is the tendency to work together for mutual benefit and is generally contrasted to competition which is working against each other for a larger share of benefits. Cooperation is not always desirable nor is compition always to be deplored. When people are cooperative regardless of how they feel or the other person behaves, they may be exploited and taken advantage of.
(b) Nonzero-sum game? Provide examples in your discussion. What is meant by the zero-sum game is when the gains of one player equals the loss of another (Salvatore, 2014, pg. 474). For example, if a firm increases its market share at the expense of another firm by increasing its advertising expenditures, the firm imposed on may not gain any market expenditures, but lose.
Kersten, W., & Bemeleit, B. (2006). Managing risks in supply chains: How to build reliable collaboration in logistics. Berlin: Erich Schmidt.
We are faced with an extremely competitive market with two players. The situation could be summarized in the hereunder points:
To test these models in collusion, bidders interact in a three-stage game and can be of type risk neutral, strong or weak. In the first stage, the strong bidders vote for or against forming a cartel and a cartel is only formed if they all agree. When they form a cartel they incur a cost. In the second stage, if a cartel is formed the strong bidders interact in a pre-auction knock-out mechanism where all bidders submit a sealed bid and the highest bidd...
Nash Jr economics theory was transformed by his ideas. For us to understand both the importance of Johns work and how it would be overlooked in the history of the economics thought. John puts a whole new appearance on the competition and he drew the devotion of theoretical economist’s. They turned game theory into a tool. This young genius brought the field to execution. In Economics, the market example sheds little light on less objective methods of interactions between individuals with greater ability to influence results. For ex, even in markets with massive numbers of buyers and sellers, individuals have info that’s others do not decide how much to reveal or hide and how to interpret info bared by other. John’s explanation thoughts for games with many players provided that alternative. Economist usually assumed that each individual will act to make the most of their own objectives. John officially defined equilibrium of a non-cooperative game to be “a configuration of tactics, such that no player acting on his own can change his strategies to achieve a better outcome for himself”. The economic theory first gotten a higher level of formal analytical accuracy by using the linear algebra of prices of numbers of product distributed and mathematical practice in turn encouraged economist to define
Game theory is an interesting branch of mathematics with links across a large number of Fields, psychology, statistics, bioligy, econonimcs. The most promienent being its use in the field of psychology. The Prisoners Dilemma is an interesting example of game theory i was subjected to in economics, and as i analyzed the Dilemma, i found these links surface themselves in multiple times in my everday life.
Quickly becoming apparent after only a few rounds of play was in the absence of coordinating direction the individual supply chain links immediately focused upon acting in their own best interests much more so than the organization as a whole. Whether the end use customer was satisfied became secondary to avoiding stock outages for the next link in the chain, or their specific “upstream customer”. The real world application of this example is that focus on the end use customer must be consistent and maintained throughout the process up to and including delivery. Undoubtedly internal customers, such as retailers to wholesalers and distributors to production, must be serviced along the way for the transaction to ultimately occur. However, unless an end use customer is involved no profit can be realized by anyone.
Breaking down the different behavior that is involved in interactive decisions can help predict likely outcomes and in turn benefit society. Games have three main forms, which are pure coordination, strictly competitive and mixed motive, that provoke players to either fully cooperate, move forward with only individual needs in mind or a compromise between the two. Payoffs are a part of every game and the utility for each player is determined by completeness, transitivity and lottery in order to ensure they are a rational decision maker. Some of the key approaches used to obtain these utilities are dominant strategy, best reply and nash equilibrium. Nash equilibrium has become a focus of game theory because it sheds light on the motivation involved in maximizing utilities as well as how players use common knowledge and rationality to achieve this goal. These fundamental ideas and key concepts of game theory should be studied and analyzed carefully in order to benefit from the
During Nash’s time at Princeton, he worked on his equilibrium theory. In 1950 he earned a Ph.D. with a dissertation on non-cooperative games. This thesis contained what would later be recognized as the Nash Equilibrium. During the next few years he work...
19. Sodhi, Sunil Chopra and ManMohan S. Managing Risk to Avoid Supply Chain Breakdown. MITSloan Management Review. [Online] October 15, 2004. [Cited: February 25, 2010.] http://sloanreview.mit.edu/the-magazine/articles/2004/fall/46109/managing-risk-to-avoid-supplychain-breakdown/.