Quantitative Analysis for Management, 13/e

M4.1 Language of Games

To introduce the notation used in game theory, let us consider a simple game. Suppose there are only two lighting fixture stores, X and Y, in Urbana, Illinois. (This is called a duopoly.) The respective market shares have been stable up until now, but the situation may change. The daughter of the owner of store X has just completed her MBA and has developed two distinct advertising strategies, one using radio spots and the other newspaper ads. Upon hearing this, the owner of store Y also proceeds to prepare radio and newspaper ads.

The $2\times 2$ payoff matrix in Table M4.1 shows what will happen to current market shares if both stores begin advertising. By convention, payoffs are shown only for the first game player—X, in this ...