Business Competition

Game Theory · Axiom Academy

REAL WORLD Business Competition How Game Theory Drives Strategic Decisions in the Marketplace Imagine you're the CEO of a major soft drink company. Your biggest rival just announced a massive sale. Do you: Match their price to stay competitive? Keep your price high and hope customers value quality? Undercut them with an even lower price? This isn't just a business decision - it's a strategic game where your best move depends entirely on what your competitor does. Welcome to game theory in action! Real-World Impact: Every day, companies like Coca-Cola and Pepsi, Amazon and Walmart, Apple and Samsung engage in strategic competitions where game theory principles determine billions of dollars in profits. The Cola Wars: A Classic Example Let's examine one of the most famous business rivalries in history: Coca-Cola vs Pepsi For over a century, Coca-Cola and Pepsi have competed intensely for market share. Their pricing decisions are interdependent - when one cuts prices or runs promotions, the other must respond strategically. This creates what economists call a simultaneous game : both companies must decide their pricing strategy without knowing what the other will do. Let's model this as a simple pricing game. Each company can choose to price their product either High or Low . Payoffs shown as (Your Profit, Rival's Profit) in millions Now let's think strategically. As the CEO, you need to analyze what happens in each scenario:

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