Game theory allows companies to actively shape business strategy by considering how to "change the game" rather than just playing the game as found. There are four levers for changing the game: changing the players involved, the added value each brings, the rules of competition, and players' perceptions of the game. Successful strategies view business relationships holistically and look for win-win opportunities through "co-opetition" where companies both cooperate to create value and compete to divide it.

1. The Right Game: Use Game
Theory to Shape Strategy

2. The Right Game: Use Game Theory to
Shape Strategy
Adam M. Brandenburger, Barry J. Nalebuff
Harvard Business Review, July-August, 1995
“Successful business strategy is about
actively shaping the game you play, not just
playing the game you find.”

3. Game Theory:
• Using game theory allows us to consider
“changing the game” WHY is that helpful?
• You can make the game you want…to
your advantage. HOW?
• Change the player, added value, rules or
tactics.
• PARTS are the levers for moving the world
of business ala Archimedes.

4. Lessons from Game Theory
 Look at the situation from the perspective of all
others’ involved
 Look for win-win, not just win-lose opportunities
 Look for opportunities to “change the game” for
the better
 Game theory gives more complete picture of
business relationships
 Avoids exclusive focus on competition(win-lose)

5. “Co-opetition”
•Recognizes that business relationships have more than one
aspect
•By identifying all the players and all the interdependencies,
game theory expands the repertoire of strategies
 Businesses must both cooperate
to create value, even while
competing to divide this value
among themselves

6. Brandenburg and Nalebuff use “Value Net” as their
core concept. They identified four types of players
that every company faces:
1. CUSTOMERS
Parties to which the company directs its products and services.
In return, money goes from the customers to the company.
2. SUPPLIERS
Parties who flow resources to the company. In return, money
goes from the company to the suppliers.

7. 3. COMPETITORS
The definition depends on perspective:
Customer perspective: “A player is your competitor if customers
value your product less when they have the other player’s
product than when they have your product by itself.” Your
product behaves as a substitute for a competitor’s product – your
increase in market share will directly decrease your competitor’s
share. Substitutes can be both direct, e.g. two bakeries competing
as well as indirect, e.g. bread versus rice.
Supplier perspective: “A player is your competitor if it is less
attractive for a supplier to provide resources to you when it is
also supplying the other player than when it is supplying you
alone.” Any firm competes for resources in quantity, quality and
price with other organizations.

8. 4. COMPLEMENTORS
The definition also depends on perspective.
Customer perspective: “A player is your complementor if customers
value your product more when they have the other player’s
product than when they have your product by itself.”
Complementors are the inverse of a competitor because more
demand for their products will lead to more demand for your
product.
Supplier perspective: “A player is your complementor if it is more
attractive for a supplier to provide resources to you when it is also
supplying the other player than when it is supplying you alone.”
When a market is small, it is difficult to get resources delivered
exactly on spec. When the market increases, suppliers begin to
tailor their offering and make the purchasing efforts easier on all
acquiring firms.

9. Competition and Cooperation

10. Elements of the Game
 Players
 Added Values
◦ What each player adds to the value inherent
in the total game
 Rules
 Tactics (Perceptions)
 Scope

11. Changing the Players
 Players are participants in the Value Net
◦ The Company itself, and its Customers,
Suppliers, Substitutors, Complementors
◦ How does the game change as players come in
or out?
 Canadian Airlines no longer exists in the Canadian
airline industry.
• Even if you can’t make money in a game, figure out who
stands to gain from your entry and make them pay
(Holland Sweetener)
• once you’re in the game try to change who else is in the
game; try to bring in customers, suppliers,
complementors, competitors (e.g.credit union/auto sales)

12. Changing Added Value
 What added value does each player bring to the game?
◦ If a player were not participating at all, how would the value
of the overall game be affected?
 Bobby Hull joining the Jets gave the WHA instant credibility.
 With a monopoly its ok to limit the added values of other
players (Nintendo)
 In competitive situation, you need to build your own added
value, e.g. improve quality at low incremental cost or vice versa
 but only way to protect added value is to create relationships
with your customers and suppliers…have a loyalty program
(Advantage), because it doesn’t disappear even when imitated!

13. Your added value=
the size of the pie
when you are in the
game
minus
the size of the pie
when you are out of
the game

14. Changing the Rules
 Rules determine how the game is played
◦ Can the rules be changed to make the game more
favorable for one, or for all?
 Guarantees to match lowest price
 Funding rules for universities in Manitoba
 Usually we think we should charge more to our customers and
less to competitors
 Changing this rule is possible, e.g., introduction GM card (cash
award)and Advantage (in kind award): latter is better because it
increase the size of the pie by delivering more value for same
price)

15. Changing Perceptions
 Players’ perceptions of the game influences
the way they play it.
◦ Commitment strategies, (as ploys)
 Publicly committing to something to make others
perceive you’re serious

16. Changing the Scope
 Scope is the boundaries of the game
◦ Tying issues together in negotiations
 Softwood lumber and energy?
◦ Opening a “second front” in competition
 Hezbullah attacking Israel from Lebanon

17. • Look at the game as part of an even bigger game…
change the links between
• added values--price superior product high so you
don’t eat away at incumbent’s existing product
• rules--if you have power get long-term contracts
with suppliers, or offer package discounts
• tactics--get another player to believe that what you
will do in one situation depends on what happens in
another.

18. The Traps Of
Strategy :
• To think you have to
accept the game you find
yourself in.
• To think that changing the game must come at the expense of others.
•To believe that you have to find something to do that others can’t.
• Failing to see the whole game.
• Failing to think methodically about changing the game
•Finally there is no silver bullet for changing the game of business. It is an
ongoing process.