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Game Theory for Business: Strategic Interaction and Competitive Advantage

HBS Working KnowledgeHBS Working Knowledge14 min readJanuary 1, 2023
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Summary

Game theory provides a mathematical framework for understanding strategic interactions where outcomes depend on the choices of multiple players. This article introduces the key concepts — Nash equilibrium, dominant strategies, prisoner's dilemma, and signaling — through business examples. It shows how game theory explains pricing wars, market entry decisions, partnership negotiations, and platform competition. Practical applications include using commitment devices, understanding when to cooperate versus compete, and designing incentive-compatible contracts.

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