Abstract and Keywords
This article introduces the basic concepts of game theory as applied to pricing. It first presents the basic concepts of game theory by using simple pricing examples. The article then links those examples with both the research literature and industry practice, including examples of how game theory has been used to understand P&G's value pricing initiative and the competitive response. Section 19.2 defines the basic elements of a game and describes the fundamental assumptions that underlie game theory. The remaining sections examine models that provide insight into how games work as well as how competition affects pricing. The models may be categorized according to two attributes: the timing of actions and the number of periods.
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