What is the benefit of using game theory for resource allocation in industry perspective ?
In noncooperative games, when players agree on a Nash equilibrium, then no player can unilaterally change his strategy to improve his own outcome.
All the methods which use Game Theory for resource allocation ensure individual, coalition and a grand coalition rationality. This is with respect to Cooperative Game Theory. Coalition formation is a matter of choice. Hence there is an element of responsibility.Otherwise in industry, where last minute deviations are possible and catastrophic, resource allocation by common consent may not be possible. Another point in favour of game theoretical allocation is the 'freedom' associated with being a 'price giver' rather than a 'price taker' in a market oriented industry.
The problem with Cournot-Nash equilibrium is that it is not unique. Economists are seeking unique equilibrium. Cournot was the first to assert a behavioral assumption in order to solve bilateral competitive situations. Nash piggy-backed on that assumption. The solution besides being multiple are only as good as the assumptions. In the cooperative side, we are still to determine how many coalitions will be formed and how to divide the pie. But I think Game Theory is still a budding paradigm. Almost the whole of Industrial Organization literature is now at the mercy of Game Theory.
You may find more insightful to use a game theory approach incorporating also the hypothesis of bounded rationality. A comprehensive review of this type of work can be found here: http://economics.mit.edu/files/904
- Badges
- Science topic
- Similar topics
- Econ
- Manufacturing
- Industry