Game Theory in Supply

Game Theory in Supply has been successfully used for quite some timed now. The game theory has gained a lot of emphasis and has become a necessary tool for analyzing the supply chains with multiple agents whose objectives are different. Both cooperative and non-cooperative strategies are employed in dynamic and static settings.

There are various game strategies that are applied in the supply chains. Among them the most famous happens to be the prisoner’s dilemma. This strategy involves lots of moves and is a kind of non-cooperative game.

Game Theory in Supply has been successfully used for quite some timed now. The game theory has gained a lot of emphasis and has become a necessary tool for analyzing the supply chains with multiple agents whose objectives are different. Both cooperative and non-cooperative strategies are employed in dynamic and static settings.

There are various game strategies that are applied in the supply chains. Among them the most famous happens to be the prisoner’s dilemma. This strategy involves lots of moves and is a kind of non-cooperative game.

Application of the Prisoner’s Dilemma in Supply Chains

By applying this game strategy one can prove that cooperation always does not make the best policy when it comes to two industries. For instance there are two industrial houses among which the profit might be split while doing a deal of $100million. This outsourcing deal between the two industrial concerns will provide us with the instance where the application of prisoner’s dilemma will take place.

One of the industries wishes to receive a profit of 5% after tax reduction on $100million and the other industry aspires to achieve 70% of the cost of production, which will incur a profit of 2% after tax reduction. Now if the former industry can convince the later one to bear all the costs of production along with the stock degeneration cost then this will bring them a profit equal to the loss incurred by the later. More accurately the profit gained by the former industry will increase while the profit percent of the later one will become zero. Therefore this will prove to be a boon for the former while it will turn out to be a curse for the latter industry.

All these probabilities will take place without the consent of the other industry. In other words this will be a non-cooperative move on both the ends. According to the other provision the second industry might also endeavor to minimize the profit earned by the first one. If they can convince the first one to do all its planning, to bear the burden of every other cost then they might be at a loss and the second industry might see the face of profit.

Finally, if both the industries devote all their time to plan their strategy and move without letting the other industry know about their plan there can be two possible ends. One, both of themwill profit and the other, both of them loses. If both the industries continue to fight over the expenses their profit will be halved. In this kind of a situation both the industries incur loss. Hence, they both arrive at a sub optimal solution that does not benefit either of them.