EAE Business School’s Focused Programs are a high academic level and added value initiative for students, focusing on six areas of knowledge: management, finance, leadership, marketing and sales, innovation and sector insight. The lecturer at the School and director of Master of International Business, Marc Sansó, ran a conference within the framework of these programs, focusing on game theory in companies.
As far as the lecturer is concerned, game theory applies throughout the business sphere at all levels. “The essential difference between a good director and a great one comes down to long-term vision. The operating approach to company management (process control, team management, improving operating margins) is essential but not enough on its own. Game theory represents a structured view of strategic thinking, which we often (and mistakenly) relegate to a purely intuitive role”.
In this presentation, Marc posed and responded to some questions for which game theory offers solutions: What will happen in an industry if the dominant player reduces the price of the main product? How can I generate competition on a distribution channel that is my competitors’ weak point? How can I promote the creation of collaborative strategies in a competitive environment?
In the conference, Marc Sansó showed graphics of game theory in which the company’s expectations are pitched against one’s own, according to which, if you speak first, you have a 25% chance of success, but if it is the company (the ‘opponent’) that has the first word, your probability of success is 50%. It must be remembered that the game can always change, that before you can acquire any strategic advantage, it must be understood, and that it is important to embrace complexity and ambiguity as an opportunity to generate a strategic advantage.
The lecturer gave an overview of the dominant strategy, the one that always gives the greatest benefit to the user, regardless of the opponent’s strategy; and the dominated strategy, the one that is of the littlest use to a player, regardless of the opponent’s strategy. How is the dominant strategy applied to the business world? “Understanding the opponent’s dominant strategy means anticipating their moves, with the competitive advantage that this implies. This could be applied, for instance, to an investment decision, the timing of the launch of a new product or even the negotiation of your starting salary at a company. Timing is fundamental. Setting the timing also involves controlling the game, so anticipating the opponent’s moves is vital”, added Marc Sansó.
The impact of timing is extremely important. “Timing is a matter of the chronological order in which the players make their moves, but also a question of how easy it is to observe the moves and the capacity to foresee with certainty how they will play”, he stressed. The most basic concepts involve understanding the incentive structure of the participants in the game, which basically determine how they are going to behave. “Then it is vital to consider the timing of the moves and the potential existence of dominant strategies for some of the participants”, added the lecturer.
As you delve deeper into game theory, the features of ‘equilibriums’ and ‘dilemmas’ are analysed, situations with specific characteristics or which are impossible to resolve without introducing somewhat more complex strategies. Marc Sansó explained that some of the more famous examples in this respect are the Prisoner’s Dilemma and the Nash Equilibrium.
In the presentation, Marc Sansó also mentioned one of his books, The Value Trail, published in March 2016 focusing on Competitive Strategy and Strategic Management. In this respect, he explained how to understand, apply and monitor successful business models effectively through the book, which is “a breath of fresh air in management literature. It gives excellent examples of how organizations should act in order to survive in the current competitive panorama, ensuring that the value perceived by the consumer is the top of the pyramid”, he said. The Value Trail is a radical new approach to value creation. The book is a ground-breaking contribution to strategic management in which the lecturer combines his deep academic knowledge which his extensive experience as a strategic consultant in order to generate a new global framework for understanding and managing the true sources of competitiveness in companies.