Uncertainty And Game Theory

Uncertainty and Game Theory:

Introduction:

The game theory was first introduced in the year 1944 by Oscar Morgenstern and John Neumann, the theory depicts that decisions are made with a consideration of the decisions by other agents, therefore the decisions by firms or organisations will depend on the decisions that will be undertaken by the other firm or organisation.

A good example is whereby we have an oligopoly market and there exist only two firms producing the same good in the market, if one firm decides to raise its prices then the decision will take into consideration the reaction of the other firm, where the other firm wont raise its prices, if one firm reduces its prices then the other firm must follow.

The game theory is also related to the Nash equilibrium which depict that the best response by the players is that which is in accordance to one another actions and through this equilibrium is achieved. The Nash equilibrium was as a result of the work of John Nash.

The article to be discussed in this paper is a report from the economist and the title of the article is “another round” dated 11th October. this article is about the merger of two beer companies

where the two companies merge. This article is available at www. economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348978&story_id= 9962447

Uncertainty and Game Theory

The Molson Coors and SAB miller beer companies:

The SAB miller is the largest beer brewer in the world and Molson Coors is the third largest producer in the United States, as a result of the stunted growth in the consumption of beer in the united states the companies have decided to choose other forms of growth, due to the increased supply of beer the beer producing companies have become more competitive and some have opted to under price their competitors, as a result of this the firms have decided to expand their markets elsewhere or even merge with existing firms. As a result the companies have been in a position to meet the demands for the local market and also export some estimated 102 million barrels of beer to other regions in the world.

In the year 2002 a South African brewer company bought American millers at an estimated amounting to 6 billion dollars and the company was named SAB Miller, the reason for this was to out compete Anheuser Busch Company but this failed.

Recent progress is that the Anheuser Busch Company is that the company has merge with InBev Company such that Anheuser Busch now imports brands produced by InBev which places it in a better competitive strategy.

From the above article summary it is clear that the companies that produce beer are following the game theory, they compete with each other and according to the Nash equilibrium the best option or strategy is that which is in line with the strategies of the other company, from the example of the beer producing company the best option is to choose a strategy that is in line with the strategies of the other firms.

The South African brewer company bought American millers and the company was named SAB Miller for the purpose of out competing the Anheuser Busch Company but this failed. After wards the Anheuser Busch follows the same strategy whereby it merges with InBev Company.

Uncertainty and Game Theory

Conclusion:

Oscar Morgenstern and John Neumann in 1944 introduced The game theory, this theory depicts that decisions are made with a consideration of the decisions by other agents, The game theory is connected to the Nash equilibrium which depict that the best response by the players is that which is in accordance to one another actions and through this equilibrium is achieved. The Nash equilibrium was as a result of the work of John Nash.

The game theory can be used to make decisions regarding the strategies to undertake when rival companies face extreme competition from its competitors, from the above discussion the SAB Miller Company and the Anheuser Busch Company where by the Anheuser Busch follows the game theory strategy where it decides to adopt a strategy that is inline with its competitor

References:

The economist (2007) another round, retrieved on 18th October, available at www.economist.c om/research/articlesBySubject/displaystory.cfm?subjectid=348978&story_id=9962447