Recently, I’ve been really into watching psychology materials, especially about game theory applications in different industries.
So, I decided to study whether game theory is applied in the upstream, midstream, and downstream sectors of a specific industry over the next few weeks.
In simple terms, game theory is about how two or more participants make decisions that affect each other, aiming to maximize either personal or collective interests. Games can be competitive or cooperative.
One concept I’m interested in is Nash Equilibrium.
Each player is making the choice they believe is best, based on the choices others have already made. No one would easily change their choice because it might cause them to lose their advantage.
To illustrate, let’s think of a price competition between two pizza shops：
A and B, located close to each other and selling almost the same pizza. If Shop A prices their pizza at £10 and Shop B at £12, most customers will go to A because it’s cheaper. Then, B may lower their price to £10 as well. Now, A might consider going down to £9. If both continue dropping prices, their profits will shrink. Eventually, both shops realize that sticking to a £10 price lets them both make some profit. This state is a Nash Equilibrium.
This also reminds me of my intellectual property course, where two parties can share profits through fair copyright licensing instead of falling into price wars or disputes. This could be seen as an application of Nash Equilibrium in an industry setting.
Market research may also aim at achieving Nash Equilibrium. In market competition, companies need a deep understanding of competitors’ pricing strategies and price movements. Only by finding the optimal price point can they avoid pricing too high, losing customers, or too low, reducing brand value and profits.
Moreover, Nash Equilibrium applies to team collaboration, balance between platforms and creators, and overall profit sharing. It helps participants make more rational and mutually beneficial decisions. This balanced state can help the creative industry maintain its innovation while reducing unnecessary conflicts and resource waste, leading to healthier growth in the sector.
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