Sometimes I use games theory to help the owners of small businesses gain an insight into business behaviour.
Often they start by denying any games are invovled and we always have an enlightening discussion. There are three rough groups of games that I usually see played in business:
Zero sum - I win, you loose
The Zero Sum game is the common situation where one player's success reduces the returns for the others. Typically this happens anywhere where people compete in a limited market.
- Recently in my home town, the two resident butchers have been impacted by the arrival of another butcher: a sales increase for any butcher reduces the sales made by the others.
- Similarly, as the supermarket at the edge of town sells only high-volume, low-price goods, our independent hardware store has been restricted to high-priced, low-volume lines.
- Many UK charities have suffered since the National Lottery creamed off a lot of the ‘pocket money’ that the public used to put into charity donation boxes.
For the Zero Sum Game, wherever the size of the cake is fixed, if I cut a big slice, you always get less.
Unconditional contracts - we win or loose together
Wherever people share goals that lead to common outcomes, they can trade by swapping something that the other values.
- This happens every time I trade my cash for a shopkeeper's goods that I want to buy - we both benefit.
- It also happens where team members contribute their individual skills and knowledge to the team effort - the MD, sales person and production worker need each other for the whole business to thrive.
For Unconditional contracts, the size of the cake is elastic, and if we work together, we all get larger slices.
Conditional positive sums - we choose how we win or loose
The ‘prisoners dilemma’ is a sophisticated game with three possible outcomes - if I move, I do OK at your cost; if we both move, we lose together, but if we both hold fast, we both maximise our benefits.
- In ‘free riding', some car drivers are uninsured so the cost of their traffic accidents is paid for by the insurance premium of law-abiding drivers.
- Currently our fishermen are suffering the ‘tragedy of the commons': the more fish each boat takes, the less fish others find, and without common management, the sea becomes over-fished.
- In a business network, I can help other business people link to market opportunities that I know about. They can do the same for me. Where we both help each other, we both thrive. However if either of us feel we are doing all the giving without sufficient getting, we will drop out of the network.
For Conditional positive sums, the size of the cake is determined by our cooperation and mutual trust, and selfish actions can damage everyone's livelihood.
We all have market forces that control our freedom to pursue our business. If you identify which games are going on around you, you may gain sufficient insight to put yourself on the winning side as the game is played out.
Adrian Pepper specialises in helping small business to sharpen their marketing, increase their sales and grow their income. You can contact him through Help4You Ltd , through his website at http://www.help4you.ltd.uk or by phone +44-7773-380133. At http://feeds.feedburner.com/help4you , you can listen to his podcast for small businesses.