Game Theory Supporting Competitive Challenges

Abstract

In today's world of unpredictable and sudden changes in global economy, the companies that want to plan their business policies wisely must be capable of doing more than merely surviving economic domestic and global market changes – they need to be able to predict the future. An analyst who knows the of game theory and recognizes its potentials in analyzing business decisions in cooperation and/or conflict situations is capable to use game theory as a tool that will ensure him competitive edge and help him in predicting possible outcomes in a range of complicated or less complicated, specific or everyday business situations.The purpose of this paper is to give an insight into the possible ways of analyzing and shaping business decisions by implementing game theoretic principles, and to investigate the possibilities of taking creative risks to achieve strategic advantage. Every game involves a certain level of risk. Managers are often faced with situations in which decision making is made difficult due to their lack of knowledge about the opponent's possible moves, or incomplete insight into possible outcomes and consequences. Also, the aim is to demonstrate the necessity of integrating scientific findings into business processes.The text encompasses several specific areas of the implementation of game theory in business, such as entry deterrence, or FDI. Basic component of each of these applications is that they are put into the decision-making context in competitive surroundings, or, in other words, they deal with situations in which a certain number of economic agents, trying to satisfy own interests, take actions that impact common total fortune. Using the game theoretic terminology, players take actions consistent with given rules of the game, and these common activities determine the eventual outcome and payoffs. Apart from providing the framework and structure for modeling competitive environment, game theory also provides the answer to a crucial question: Which optimal decision or activity should a competitor make or take anticipating his/her opponent's optimal activities?Game theory accurately depicts real competitive situations from the immediate surroundings thereby becoming an important advisor in designing business strategies, particularly in the light of the integration of Croatia's economy into European and global economies.