In the last twenty-five years, game theory has been applied to  a growing number of practical problems: from antitrust analysis to  monetary policy; from the design of auction institutions to the  structuring of incentives within firms; from patent races to dispute  resolution. The purpose of Game Theory and Business Applications  is to expand these applications of game theory into a broad and  meaningful view of the way business decisions can be modelled and  analyzed. The chapter contents embrace a wide variety of business  functions -- from accounting to finance, to operations, to  strategy, and to organizational design. In addition, specific  application areas include numerous kinds of market competition,  bargaining, auctions and competitive bidding. All of these  applications involve competitive decision settings, specifically  situations where a number of economic agents in pursuit of their  respective self-interests take actions that together affect all of  their fortunes. In the language of game theory, players take actions  consistent with the given `rules of the game,' and these joint actions  determine final outcomes and payoffs. As this volume demonstrates,  game theory provides a compelling guide for business strategy.   The first section of this volume discusses game-theoretic applications  in four functional areas of business: finance, accounting, operations  management and information systems, and organization design. The  second section considers competitive strategies in `imperfect'  markets. Using cooperative and non-cooperative game-theoretic  approaches, these four chapters consider various topics: spatial  competition, signaling of product quality, trust and cooperation in  ongoing relationships, strategic behavior in bargaining, and the  `balance of power' between the firm and its buyers and suppliers. The  last section of the book deals in detail with auctions and competitive  bidding institutions. The emphasis is on the contributions of game  theory to both auction theory and practice. Topics considered include  optimal auctions, bidder collusion, and the design of institutions for  selling the radio spectrum and trading electrical power.

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