An application of game theory to shape e-tailing strategies

Game theory has been applied to a variety of retail business decisions (e.g., positioning of retail store brands, retail promotion, and retail channel management); however, few retailers have applied game theory for strategic decision-making. This study presents e-tailing issues (i.e., pricing strategy, privacy and security in e-commerce, and investment web-based channel) that can be approached with three well-known strategic games: 1 Prisoner's dilemma 2 Tragedy of the common 3 Boxed pigs. The main idea and the framework of this study are adopted from Mudambi's study, which applied game theory to retail issues in 1996. Since then, however, the retail landscape has changed dramatically and e-commerce has emerged to play an important role in the market. To this end, it is necessary to examine the e-commerce market using game theory. This study developed propositions that help e-tailers' strategic decisions that can be explained by different games.