Decision making is an art and a science. It requires intuition as well as method. And one of the methods used by business leaders to make strategic decisions is Game Theory. Used extensively in economics and politics alike, game theory is the science of predicting various probable outcomes of any given situation, keeping in mind all the players and how they behave. In this video, Prof. Sumit Sarkar, professor of economics at XLRI Jamshedpur, elected professor of the year by XLRI students in 2018, talks about using game theory for negotiations, to determine pricing, etc.
Summary of the video:
In this video, Prof. Sumit Sarkar continues his interesting take on game theory. He shares how game theory plays an important role in negotiations because one must be able to predict the needs, requirements and possible actions of the party or player one intends to negotiate with.
He further talks about how game theory is useful by employers and employees as well in order to decide how their negotiation plays out. Next, he talks about pricing, and how game theory is used to determine pricing. He talks about price differentiation not being an important ‘game’ in the FMCG sector, where margins are low. He shares how the ‘game’ in the FMCG sector is all about winning over distributors and rights to sell through their networks. Next he discusses the case of Airbus and Boeing. He shares how another differentiation strategy is differentiating your product and pricing accordingly. He shares how, when Airbus 380 was introduced as the largest carrier, Boeing chose to create a completely new product in order to compete with Airbus.
He then talks about the ‘game’ in pricing when it comes to luxury products. He shares how premium products are treated differently and how the ‘game’ is all about the positioning of the products.
If you want to learn how to think strategically, and what disciplines can help you, this is a must watch for you.
1. When negotiating with someone, look at the alternate options available to that person.
2. Negotiation is all about sharing the surplus.
3. You will have to play the game on the terms of the players, not yourself.
4. A way to reduce the intensity of a price war is by differentiating your products.
5. In the case of premium products, competition does not happen in terms of prices.