Literary Review

Game Theory has become one of the most powerful analytical tools in
microeconomics. Game theory has many application, one of which is to offer
prediction, describe prescriptions and recommendation for decision makers
especially in an oligopoly market structure. We will use game theory to show
how business situation can be modelled as a game and how payoff of one player
depends on the other players action in the business framework.
In business application, Game theory can be used in three context1) Intra-organizational games, which are played within the firm,
2) Inter-organizational games, where main players are a firm and its
competitors,
3) Meta-organizational games, where main players are a social planner and an
innovative entrepreneur. (1)
We would confine our research to inter-organizational games specifically the
business decision of large corporations. The most popular topic in Game theory
analysis is what kind of innovation strategy (cooperative, imitative, noncooperative) should it choose when such activities depend on firms own
condition and its market status in the industry. (1)
Game theory offers methods and concepts such as strategies and equilibrium
which provide useful insights in various business situations and help decision
makers understand the dynamics in business interactions and lead to higher
quality and more informed decisions.
There are various research papers which has used game theory as the tool to
solve and analyse crises, conflicts, prevent and detect frauds, environmental
problems, automated negotiation etc. It especially does optimization of all the
existing options and helps to select the best possible solution even in the worst
situation. One of the best example used in previous research paper for the crisis
solution using game theory is to provide a substantiating view on the crisis
started in 2007, whose consequences transcended around the world recession.
The paper is based on a static game theory along with the limits of classic
finance theory to provide satisfactory explanations of different financial events.
The aim was to analyse two cases of application of the game theory in the
financial intermediation, with the impact on crisis. The proposed games
correspond to deposits and loans. The end of the game managed to the idea that
balance is reached only when the players, both deponent and borrower will
withdraw money from the bank together.
In one of the research finding, it had been shown how game theory can be used
in programming automated agents within the Advance Decision Environment
for Process Tasks project, used by most of the telecom company in some of
crucial processes. It showed a concept of artificial agent that acted
independently for its users interest and its advantage over the personal agents.
An artificial agent could remove some of serious negotiation which crank the
problem up several notches.
Game theory could be very helpful in identifying improvements in audit practice
and promising areas for future research. It is the best analytical method that
incorporate strategic interdependence, which needs to predict behaviour based
on a players motivations as well as the anticipated actions of the opponent.
Although research suggest that audit standards and practice aids inhibit this

process, experienced auditors often consider the strategic implication of fraud

in their audit plans. Understandings the boundaries of game theory is important
for determining how audit standards might facilitate auditors consideration of
strategic behaviour. For example, predicting an auditees response to
anticipated auditor behaviour is very difficult.
One of the researchists studies prediction explain how the solution and
situation defined using game theory is truly applicable to Iraqi conflict. His
article represented the first known effort to apply the game-theory concepts of
Parento improved and Parento optimal strategies as well as Nash and
preferred equilibriums to the Iraqi conflict. Using the game theory, the article
examined how US and coalition forces would ultimately suffer causalities at an
increasing rate the longer they remain in Iraq.

Our research considers the implicit similarities between the situation of new
market entrant and the prisoners dilemma framework. It is important to know
how the new market entrant understands the processes that promotion of
cooperation between the existing market players and them. In prisoners
dilemma, two suspects of a crime are kept in different cells with no means of
contact with each other. The police does not have any evidence against the
suspects so they play a game with them. The prosecutor tell each one of the
suspects separately the following points:
1) If you confess and agree to testify against the other suspect, the charges
against you will be dropped and you will go scot-free.
2) If you do not confess but the other suspect does, you will be convicted and
the prosecution will seek the maximum sentence of three years.
3) If both of you confess, you will both be sentenced to two years in prison.
4) If neither of you confess, you will both be charged with misdemeanours and
will be sentenced to one year in prison.
As the above example shows that result is worse when each suspect follows his
own self-interest than if they had both cooperated. When both of them
cooperates and stay silent, both would get a total prison sentence of 2 years.
While in all other outcomes, they would get three to four years of sentence. The
same case follows in oligopoly market structure where a firm who is only
interested in getting the maximum benefit for himself or herself would
generally prefer to defect, rather than cooperate. This dilemma, where the
incentive to not cooperate is so robust even though cooperation may produce
the best results, plays out in numerous ways in business and the economy, as
discussed below.
Analysing the incentives of vertically integrated oligopolists to concede access
to their bottleneck inputs to an entrant in the downstream market reveals that
for some levels of asymmetry, the incumbents face a prisoners dilemma with
respect to conceding access to their bottleneck inputs.

In our research work, we will also be discussing the entry barriers and
strategies counteracting the same for the new market entrant. The potential
demand in a new market evolve overtime. Initially, demand is low but with the
advertising by early entrant of the industry can speed up demand growth.
Firms entry strategy is also influenced by the transition of economic states.
Firms are more likely to enter under a state that shows the prospect of demand
taking off soon.
The previous researches show that markets with high advertising-to-sales ratios
have significantly lower entry rates than markets with low advertising-to-sales
ratios. This supports the hypothesis that service differentiation barriers do
indeed reduce entry rates in e-commerce market. Entry rates apparently are not
dependent upon market concentration. The results indicate that entry rates
have no impact on exit rates and vice versa.
Another research shows that there are two factors affecting entry and exit
factors of a corporation namely multiplier effect and competition effect .The
research analyzed data from 25 firms and came to the conclusion that
competition effect is larger than multiplier effect in terms of the entry
factor.Competition effect is the predominant force for patterns of exit as earlier
entry forces the incumbent firm to exit whereas previous exit make it a lot
easier for incumbent forces to survive. (1-M)
A new competitive landscape is developing largely based on the technological
revolution and increasing globalization. The strategic discontinuities
encountered by firms are transforming the nature of competition. To navigate
effectively in this new competitive landscape, to build and maintain competitive
advantage, requires a new type of organization. Success in the 21st century
organization will depend first on building strategic flexibility. To develop
strategic flexibility and competitive advantage, requires exercising leadership,
building dynamic core competencies, focusing on and developing human capital,
effectively using new manufacturing and information technologies, employing
valuable strategies. Thus, the new competitive landscape will require new types
of organization and leaders for survival and global market leadership.
The results confirm that over a three-year period the rate of (net) entry is
positively affected by the presence of market room. The exit rate, however,
does not show a negative relation with market room.
Ecommerce firms are facing increased saturation in their respective home
markets .To compensate for such saturation expanding the sales to new foreign
countries is the way forward . The prospect of entering a new market can be
challenging . Hence firms must develop individually designed stratergy tailor
made for each market.Digital is changing the landscape of buisness rapidly,
what is hot today might be cold tomorrow.New business models are in many
ways changing the online retail game in profound ways.E-commerce companies
are coming up with disruptive techniques like flash sales and deep
discounts,social shopping in a bid to fend off competition.Thus it has become
increasingly essential to employ techniques like game theory to get a
competitive edge.

There has been a 50% growth in he last five years in the indian e commmerce
industry.The approriate ecosystem is setting in place recently although
ecommerce has been making rounds for the past two decades.The phenomenal
increase in internet penetration , growing accessibilty of online payments are
some of the key factors driving the growth for this industry.Hence such a
market becomes the ideal hunting ground for corporations who wish to expand
their maket and tap into its phenomenal growth.
Another reseach paper analyzes what is causing this phenomenal growth.Cashon-delivery was considered a key factor besides the increased use of digital
devices by the population at large.For e-commerce firms operating in india cash
on delivery accounted for 50%-80% of the online retail sales.Firms have started
adopting new models like stock and sell ,group buying which is also
contributing to growth of this industry.
The research also suggests that firms are facing some scathing challeneges like
inventory management ,location warehouses and in-house logistical
capabilities.In a country like India where connectivity is still an issue location of
warehouses has posed a serious bottleneck in their operations.The other factor
that is affecting the location of the warehouse if non-uniform tax rate across
states,multiple point taxation and octroi,entry tax.Luckily with reduced
shipping costs the effect of this issue is decreased substantially but it still needs
attention by the government in power.The industry expects that with the
introduction of GST this issue would be resolved considerably.
Early entrants like online classified advertisements have also evolved to offer a
plethora of services like buying and selling of vehicles to fining a babysitter.
They now offer b2b ,b2c and c2c modes of commerce to its customers.The b2c
e-commerce sector may be broadly classified as travel and non travel.Online
travel booking is the largest b2c e-commerce segment accounting for
approximately 81 % revenues in 2011.
Research indicates that India has a internet penetration of 11.4% compared to
the 80% penetration that of developed countries.This indicates that the industry
still has a lot of growth opputunity . This is supported by the fact that the
government of India has included increased technology adoption as part of the
National telecom policy 2011.
Payment landscape in India is undergoing a rapid change.The number of cards
per capita in India is .2 which is the lowest in the world .Ecommerce firms have
also raised concerns on the success rate in online transaction. With RBI giving
licences to payment banks and with increased financial inclusion in the
economy ,the current landscape is expected to change even more rapidly.
Laws regulating the ecommerce industry are still evolving and often lack
clarity.This is posing a challenge for new entrants as well as exhisting
players.Lack of lawyers specializing in this industry has addeded to the
problem.

1.InterdependenciesintheDynamicsofFirmEntryandExit
KristinaNystro m2006
INDIAN E-COMMERCE INDUSTRY OUTLOOK 2017 - FAR REACHING OPPORTUNITIES IN B2B
MARKETPLACES
RebirthofeCommerceinIndiabyEY