Application of Game Theory to Business Strategy

Game theory is the most popular mathematical tool, the spheres of application of which are economics, finance, management, politics, and military science. The game theory is a multifaceted phenomenon, which, despite being theoretical in nature, highly affects real-life business situations. This article briefly reviews the literature regarding game theory and business and introduces the basic concepts of game theory within the context of business strategy. The authors seek to provide insights into the winning business strategy which includes the elements of competition and cooperation. They determined the main rules of the sequential and parallel interaction in the game. Likewise, the authors focused on the prisoners’ dilemma and highlighted two obvious alternatives that managers can use to ensure compliance with agreement. The four characteristics of a successful business strategy were presented as a prerequisite for decision-making using game theory.