The right game: Use game theory to shape strategy

Adam M. Brandenburger, Barry J. Nalebuff

Brandenburger, A. M., & Nalebuff, B. J. (2002). Use game theory to shape strategy. Strategy:
critical perspectives on business and management, 4, 260.

The essence in business success lies in making sure you’re playing the right game.
Von Neumann and Morgenstern distinguished two types of games: ruled-based games and
freewheeling games.
-Ruled-based games: players interact according to specified ‘’ruled of engagement’’.
(contracts, loan covenant, trade agreements)
This game follows the principle that for every action, there’s a reaction. You need to analyze
how other players will react to your action. Look forward into the game to figure out which
actions will take you to where you want to end up.
-Freewheeling games: players act without any external constrains. (buyers and sellers
determine value in an unstructured way)
You can’t take away of the game more than you bring to it. In business you can’t take away
more that your added value.
Business is a mix of both type of games.
The primary insight in game theory is to focusing on others. Put yourself in the shoes of the
others. To assess your added value, ask what can you bring to the others players.
Successful business strategy is about shaping the game you play not playing the game you
find.
FROM LOSE TO WIN-WIN
There’re more advantages in win-win strategies like the GM’s: 1) These strategies are
relatively unexplored, there’s potential in finding new opportunities.2) There’re easy to
implement because others won’t resist. 3) Other players won’t retaliate so it’s more
sustainable. And imitation is not harmful.
It’s important to take in count both cooperative and competitive ways of change the game
referred as competition, considering that win-lose strategies backfire.
THE GAME OF BUSINESS
The game of business is all about how to create and capture value.
The VALUE NET is a schematic map designed to represent all the players in a game and the
interdependency among them.
In business there’re substitutors and complementors players.
-Substitutors are alternative players from who customers can buy products and to who
suppliers can sell their products. (Coca-cola/Pepsi, Coca-cola/Tyson food)
-Complementors are player from who customers can buy their complementary products and
to who suppliers can sell their complementary products. (software-hardware companies)
Although it’s possible for a player to occupy both roles simultaneously.
Two symmetries in the game of business: Customers-Suppliers, Substitutors-
Complementors. Which are revealed in the Value Net.
Managers need to understand those symmetries in the value net to come up with new
strategies or new applications of the existing ones. There can be cooperative interactions with
substitutors and competitive interactions with complementors.
CHAGING THE GAME
To change the game, it’s important to draw the value net of the firm and identify all the five
elements of it: players, tactics, scope, added values, rules. (P.A.R.T.S)
*Players: Customers, suppliers, substitutors, complementors.
*Added values: what each player brings into the game.
*Rules: In business there’s no universal rules, they can come from law, custom, contracts.
*Tactics: used to shape the game or the way it is perceived.
*Scope: determines the boundaries of the game.
CHANGING THE PLAYERS
Such as the example of NutraSweet illustrates sometimes the most valuable service you can
offer is to create competition.
All manufacturers want a second source of its product, it’s good to create an identity and
have cost advantage because it minimizes the negative effects of entry by a generic brand.
Also, a company can benefit from bringing complementors into the game, like the example
of hardware and software firms. Creating competition in the complements market is the flip
side of coopetition.
CHANGING THE ADDED VALUE