GAME THEORY 1
Game theory can be used to understand various concepts related toorganizational growth. Nash equilibrium refers to a situation whereboth players adopt winning strategies (Chang, 2015). Participants mayhave to settle for fewer benefits to avoid losing assets. On theother hand, both players can lose significantly if they manifestselfishness. Notably, the concept of Nash equilibrium has aconsiderable effect on organizational growth since it encouragescooperation.
All companies within a particular industry desire to make profits andenhance their market share. Revenues are also needed to acquire morecapital and cater for financial obligations. In this regard,companies set prices that are significantly higher than theirproduction costs. On the other hand, consumers desire to acquire themost affordable goods and services. Hence, they will ordinarilycompare prices among different providers before settling on the bestoption (Dixit, 2013). Therefore, companies cannot afford to setwhatever prices they desire for their products.
Goods and services that are deemed expensive are avoided ashouseholds aim for the cheaper items. Firms risk losses whencompetitors set prices that are lower than their production costs.Consequently, Nash equilibrium impacts the economic decisions suchthat organizations must agree on fixed prices (Dixit, 2013). In thismanner, each firm can guarantee its own survival. Similarly,organizations that set higher or lower prices will experience stuntedgrowth.
Indeed, Nash equilibrium and the idea of one player affecting anotherplayer can lead to greater collaboration in an organization. Allfirms within an industry desire to earn profits from performingvarious transactions. However, it may not be possible for allcompanies to set prices for consumers. Some entities incur fewerexpenses than others due to higher levels of efficiency. Furthermore,some commodities have seasonal demand. Hence, it is vital for firmsto cooperate and adopt mutually acceptable prices. Therefore,organizational growth is dependent on the level of coordination amongvarious enterprises.
Chang, K. (2015, May 24). Explaining a Cornerstone of :John Nash’s Equilibrium. New York Times. Retrieved fromhttps://www.nytimes.com/2015/05/25/science/explaining-a-cornerstone-of-game-theory-john-nashs-equilibrium.html?_r=0
Dixit, A. (2013). Explained. PBS. Retrieved fromhttp://www.pbs.org/wgbh/amex/nash/sfeature/sf_dixit.html