Abstract
Game theory may be used to gain insight into interfirm competition and the marketing decision-making process. This paper is aimed at the reader unfamiliar or only vaguely familiar with game theory and begins with a review of game theory terminology useful to marketing applications. Attention then focuses on the meaning of rational behavior in less-than-perfect conditions, which is a critical issue in the application of game theory to practical business situations (what may appear to be irrational behavior under conditions of complete information may be reasonable given the complex competitive environment typical of marketing decision-making situations). The paper concludes with an appraisal of the use of game theory as a decision-making model for managers.
Similar content being viewed by others
References
Aumann, R.J. and M. Maschler. 1972. “Some Thoughts on the Minimax Principle”,Management Science 18.5 [Part II] (January): P-54–P-63.
Bacharach, Michael. 1977.Economics and the Theory of Games. Boulder, Colorado:Westview Press.
Batlin, Carl Alan and Susan Hinko. 1982. “A Game-Theoretic Approach to Cash Management”,Journal of Business 55.3 (July): 367–381.
Bernheim, B.D. 1984. “Rationalizable Strategic Behavior”,Econometrica 52: 1007–1028.
Borel, Emile. 1953a. “The Theory of Play and Integral Equations with Skew Symmetric Kernels”, Transl. L.J. Savage.Economica 20: 97–100.
—, 1953b. “On Games that Involve Chance and the Skill of the Players”. Transl. L.J. Savage.Economica 20: 101–115.
—. 1953c. “On Systems of Linear Forms of Skew-Symmetric Determinant and the General Theory of Play”. Transl. L.J. Savage.Economica 20: 116–117.
Deal, Kenneth R. 1979. “Optimizing Advertising Expenditures in a Dynamic Duopoly”,Operations Research 27 (July–August): 682–692.
Dixit, A. 1982. “Recent Developments in Oligopoly Theory”,American Economic Review Proceedings 72 (May): 12–17.
Erickson, Gary M. 1985. “A Model of Advertising Competition”,Journal of Marketing Research 22 (August): 297–304.
Feichtinger, Gustav. 1983. “A Differential Games Solution to a Model of Competiton Between a Thief and the Police”,Management Science 29.6 (June): 686–699.
Green, E. and R. Porter 1984. “Noncooperative Collusion Under Imperfect Price Information”,Econometrica 52: 87–100.
Harsanyi, J. 1982a. “Subjective Probability and the Theory of Games: Comments on Kadane and Larkey’s Paper”,Management Science 28.2: 120–124.
— 1982b. “Rejoinder to Professors Kadane and Larkey”.Management Science 28.2: 124–125.
— 1968. “Games with Incomplete Information Played by ‘Bayesian’ Players, II: Bayesian Equilibrium Points”,Management Science 14: 320–334.
—, 1967. “Games with Incomplete Information Played by ‘Bayesian’ Players, I: The Basic Model”,Management Science 14: 159–182.
Hauser, J.R. and S. Shugan. 1983. “Defensive Marketing Strategies”,Marketing Science 2: 319–360.
— and S.P. Gaskin. 1984. “Application of the ‘Defender’ Consumer Model”,Marketing Science 3: 327–351.
Henderson, J.M. and R.E. Quandt. 1980.Microeconomic Theory: A Mathematical Approach. Third edition. New York: Mc Graw-Hill.
Jeuland, A. and S. Shugan. 1983. “Managing Channel Profits”.Marketing Science 2: 239–272.
Jorgensen, S. 1982. “A Differential Games Solution to a Logarithmic Advertising Model”,Journal of the Operations Research Society 33.5 (May): 425–432.
Kadane, J.B. and P.D. Larkey. 1982a. “Subjective Probability and the Theory of Games”,Management Science 28.2: 113–119.
—and—. 1982b. “Reply to Professor Harsanyi”.Management Science 28.2: 124.
Kotler, Philip and Ravi Singh. 1981. “Marketing Warfare”,The Best Of Business 3.2 (Fall): 49–58.
Kuhn, H.W. and A.W. Tucker. 1950. Preface, inContribution to the Theory of Games, Vol. 1.Eds. H.W. Kuhn andA.W. Tucker.Annals of Mathematical Studies 24.Princeton:Princeton University Press.
Krass, Josif A. and Shawkat M. Hammoudeh. 1981.The Theory of Positional Games with Applications in Economics. New York: Academic Press.
Kreps, D., P. Milgrom, J. Roberts and R. Wilson. 1982. “Rational Cooperation in the Finitely Repeated Prisoners’ Dilemma”,Journal of Economic Theory 27: 245–252.
— and R. Wilson. 1982. “Reputation and Imperfect Information”.Journal of Economic Theory 27: 253–279.
Lilien, Gary L. and Philip Kotler. 1983.Marketing Decision Making: A Model-Building Approach. New York: Harper and Row.
Little, John D. C. 1979. “Aggregate Advertising Models: State of the Art”.Operations Research 27.4 (July/August): 629–667.
Lucas, William F. 1972. “An Overview of the Mathematical Theory of Games”,Management Science 18.5 [Part II] (January): P-3–P-19.
Macrae, J. 1982. “Underdevelopment and the Economics of Corruption: A Game Theory Approach”,World Development 10.8 (August): 677–687.
Mc Guire, T. and R. Staelin. 1983. “An Industry Equilibrium Analysis of Downstream Vertical Integration”,Marketing Science 2: 161–193.
Moorthy, K. Sridhar. 1985. “Using Game Theory to Model Competition”,Journal of Marketing Research 22 (August): 262–282.
Owen, Guilliermo. 1968.Game Theory. Philadelphia: W.B. Saunders.
Rao, Amber G. and Melvin F. Shakun. 1972. “A Quasi-Game-Theory Approach to Pricing”,Management Science 18.5 [Part II] (January): P-110–P-123.
Rao, Ram C. and Frank M. Bass. 1985. “Competition, Strategy and Price Dynamics: A Theoretical and Empirical Investigation”,Journal of Marketing Research 22 (August): 283–296.
Rapoport, Anatol. 1970.N-Person Game Theory. Ann Arbor: University of Michigan.
Schwartz, A. and L. Wilde. 1982. “Imperfect Information, Monopolistic Competition, and Public Policy”,American Economic Review Proceedings 72 (May): 18–23.
Schotter, Andrew and Gerhard Schwodiauer. 1980. “Economics and the Theory of Games: A Survey”,Journal of Economic Literature 18.2 (June): 479–527.
Selten, R. 1978. “The Chain Store Paradox”,Theory and Decision 9: 127–159.
— and W. Guth. 1982. “Game-Theoretical Analysis of Wage Bargaining in a Simple Business Cycle Model”,Journal of Mathematical Economics 10.2-3 (September): 177–195.
Shubik, Martin. 1972a. “On the Scope of Gaming”,Management Science 18.5 [Part II] (January): P-20–P-36.
— 1972b. “On Gaming and Game Theory”,Management Science 18.5 [Part II] (January): P-37–P-53.
— 1959.Strategy and Market Structure. New York: John Wiley and Sons.
— and Richard Levitan. 1980.Market Structure and Behavior. Cambridge, Massachusetts: Harvard University Press.
Smith, B.T. and J.H. Case. 1975. “Nash Equilibria in a Sealed-Bid Auction”.Management Science 22.4 (December): pp. 487–497.
Stern, M. 1978. “Game Theory—A Practical Tool”.Accountancy 89.1018 (June): 66–67.
Vaida, S. 1956.The Theory of Games and Linear Programming. London: Metheun and Company Ltd.
von Neumann, John. 1928. “Zur Theorie der Gesellschaftspiele”.Math. Annalen 100: 295–320.
— and O. Morgenstern. 1947.Theory of Games and Economic Behavior, second edition. Princeton: Princeton University Press.
Weyl, H. 1950. “The Elementary Theory of Convex Polyhedra”, Transl. H.W. Kuhn. InContributions to the Theory of Games, Vol. 1. Eds. H. W. Kuhn and A. W. Tucker. Annals of Mathematics Studies 24. Princeton: Princeton University Press.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Anthony di Benedetto, C. Modeling rationality in marketing decision-making with game theory. JAMS 15, 22–32 (1987). https://doi.org/10.1007/BF02723287
Issue Date:
DOI: https://doi.org/10.1007/BF02723287