Supply Chains: A Manager's Guide

Insights from Game Theory

When trading partners compete with each other over a fixed sum of money, they are playing what game theorists call a zero-sum game. In zero-sum games, there's a fixed amount of money at stake, and players compete to see who can win the largest share. In Figure 3.9, two players, A and B, are competing for stakes of $100. The range of possible outcomes, from A taking everything to B getting it all, forms the diagonal line labeled the win-lose line in the diagram. The outcome of the game is a single point on this line. For clarity—these aren't standard terms—I'll call the line describing the possible outcomes the tradeoff curve, and I'll refer to the point describing the outcome as the tradeoff point. In the case of a zero-sum ...