Game theory

Game theory can be a valuable tool for senior executives of hospitality organizations in their strategy process. This is because it offers mathematical techniques for problem-solving and competitive decision-making through the use of model building (Neumann and Morgenstern, 1944). Game theory, and in particular the game often referred to as 'the Prisoner's Dilemma', can be used in hospitality organizations particularly in decision-making, handling conflicts, competition, cooperation, joint ventures and strategic alliances between the organization and other companies. It is assumed that there are two or more players in a decision-making situation and the aim is to devise a plan that maximizes gains and minimizes losses (Brandenburger and Nalebuff, 1995). It offers a rigorous approach to predict what other players (hospitality organizations) would do in a well-defined situation and what possible results would be. By using the game theory hospitality firms can systematically examine various combinations of options that can alter the situation in their favor. According to game theory, in a business situation, success or failure of a hospitality company does not mean that other hospitality companies fail. In well-thought and articulated business situations, more than one hospitality company can win, which is often referred to as win win situation. In short, predicting competitive behavior of other hospitality organizations and if possible achieving open or covert cooperation among major players can be beneficial for all parties.