StrategicGame
Student`sName
Icurrently work as an Inventory Technician in the Department of theNavy. I have observed the dilemma that faces the Department of theNavy when making purchases from one of its superior suppliers theGeneral Dynamics (Jayakumar,2014). The department contracts the supplier to provide most of its militaryequipment and systems. Observation reveals that the Department of theNavy stands to reduce its inventories by an average of 10% if itengages in a supply chain collaboration with General Dynamics. Therehas been a major need for the inventory reduction in the Navy basedue to the large costs of equipment maintenance. On the other hand,the General Dynamics would increase the price of the equipment ifthey provided storage of the inventory. However, the twoorganizations have developed their strategies to maximize theirpayoff as follows.
Oneof the current strategies applied by the Department of the Navyyields the 3% reduction in the maintenance cost. On the other hand,General Dynamics increases its income by 2% from the increased priceof the goods to the Department of the Navy. Another strategy yields a2% and 4% respectively. Below is an illustration of the currentpayoff matrix.
General Dynamics 

Strategy A(A2) 
Strategy B(B2) 

Strategy A(A1) 
(3,2) 
(3,0) 

Navy 
Strategy B(B1) 
(2,4) 
(1,3) 
Fromthe above matrix, it is evident that if the two organizations chooseeither of the two strategies, they will have the payoffs as indicatedin the diagram. However, the General Dynamics will have a zero payoffif it chooses strategy B (3, 0). In addition, the two interactingorganizations would develop different responses to each other`sstrategy. For instance, if the two players have the A1, B1 and A2, B2moves, they will respond to each other`s move with their bestresponse. General Dynamics are likely to respond to Navy moves withstrategy (2, 4) and (1, 3) which have the highest payoff. On theother hand, Navy best moves that would have more payoff would be (3,2) and (3, 0).
TheNash equilibrium of the above strategic game is as follows.
Inthe matrix above, there are four actions profiles (A1, A2), (A1, B2),(B1, A2) and (B1, B2).
(A1,A2) By choosing A1 rather than B1, Navy obtains a payoff of 3 ratherthan 2, given the actions of the General Dynamics. It is a Nashequilibrium.
(A1,B2) By choosing A1 rather than B1, Navy obtains a payoff of 3 ratherthan 1. Not a Nash equilibrium.
(B1,A2) By choosing B2 rather than A2, General Dynamics will obtain fewerpayoffs. Thus Nash equilibrium.
(B1,B2) By choosing A2 rather than B2, General Dynamics will obtain apayoff of 4 rather than 3. Not a Nash equilibrium (Vives,1990).
Tochange the rules of the game, I would introduce a strategy tomaximize the payoff of the Department of the Navy. Maximizing thepayoff of the Navy will require the identification of the dominantstrategy that the organization will use against General Dynamics.Changing the rules of the game through the dominant strategy willaffect the profit as follows (Aumann,1989).
Bychoosing strategy A1, the Navy will obtain a payoff of 3 while theGeneral Dynamics will have 0 payoff. General Dynamics will also berestricted from choosing strategy B2 since they will obtain a payoffof 1.
References
Aumann,R. J. (1989). Game theory. In GameTheory(pp. 153). Palgrave Macmillan UK.
Jayakumar,A. (2014). Navyreleases rankings of its top suppliers.WashingtonPost.Retrieved 14 January 2017, fromhttps://www.washingtonpost.com/business/capitalbusiness/navyreleasesnewlistoftopsuppliers/2014/06/13/1bd1f5aaf32b11e39ebc2ee6f81ed217_story.html
Vives,X. (1990). Nash equilibrium with strategic complementarities. Journalof Mathematical Economics,19(3),305321.