Game Trees in Business Strategy
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Game Trees
Two Kinds of Strategic Interation: Sequential & Simultaneous
The essence of a game of stratefy is the interdependence of the players' decisions. Theses interactions arise in two ways. The first is sequential; each player makes alterning moves. The players must look ahead to how his current actions will affect the future actions of others, and his own future actions in turn. The second is simultaneous; the players act at the smae time, not knowing what the others' current actions. When you play a strategic game, you must determine whther the interation is simultaneous or sequential. Prisoners' dilemma is a good example. Here we only cover sequential-move games for business strategies.
Sequential-move games
Rule: Look Ahead & Reason Back
The general principle for sequential-move games is that each player should predict the other players' future responses, and use them in calculating his own best current move. Therefore, players should anticipate where their initial decisions will ultimately lead, and use this information to calculate the best choice. Most strateifc situations involve a long sequence of decisions with several alternatives at each. Games trees of the choice in the game gives a visul aid for successful application of the rule of looking ahead and reasoning back.
Consider a business example that has a game tree. Suppose the market for MP3 players in Canada is dominated by a i-pod, and a new firm, Creative is deciding whether to enter this market.
