Programme

PhD

Term

VI

Academic Year

2021-22

Course title

Game Theory for Operations Management

Area

Production and Quantitative Methods

Credits

1.50

Instructor(s)

Prof. Sachin Jayaswal

Course Description & Objectives

Decription and Objective: Game Theory deals with problems of strategic interaction between two or more players, wherein each player needs to decide its best action, while anticipating the reaction from the other(s). In business, such strategic interactions occur at various levels. If the decision making within a firm is decentralized, then such interactions may manifest between two of its functions; for example, between marketing and production for price and leadtime decisions (Pekgun et al., 2008). This also often manifests between two retailers deciding the stocking (newsvendor) quantity of a limited shelf-life product for the next period (Lipman and McCardle, 1997), or between two manufacturers/service providers for price and delivery leadtime (So, 2000), or between a retailer and a manufacturer in a supply chain (Arya et al., 2007; Camdereli and Swaminathan, 2005), or between two supply chains (Liu & Tyagi, 2011). The objective of this course is to prepare students to analyze such problems of strategic interactions that are pertinent to Operations Managers. It also covers such problems that lie at the interface between Operations and other functions like, IT (Camdereli and Swaminathan, 2005; Ofek and Turut, 2013); Marketing (Goic et al., 2011; Pasternack, 1985; McBride & Zufryden, 1988; Pekgun et al., 2008); Environment (Orsmedir et al., 2015; Savsakan et al., 2004; Örsdemir et al., 2019; Zhou et al., 2016; Park et al., 2015); and Finance (Dada and Hu, 2008; Lai et al., 2011; Lai et al., 2012). The course assumes no prior background on Game Theory. It will, therefore, begin with the basic concepts of elimination of dominated strategies and Nash Equilibrium to arrive at the outcome of a game. We will discuss four classes of games: static games of complete information; dynamic games of complete (perfect/imperfect) information; static games of incomplete information; and dynamic games of incomplete information. Corresponding to these four classes of games, we will discuss the four notions of equilibrium in games: Nash equilibrium, subgame-perfect Nash equilibrium, Bayesian Nash equilibrium, and perfect Bayesian equilibrium. After developing the idea of corresponding equilibrium concept, we will study one or two problems of strategic interactions arising in each of the four categories of the games, which are relevant to Operations/Supply chain Managers. We will see how to arrive at the corresponding equilibrium for each of the games, and derive useful insights for Operations managers. To this end, the course will also introduce Bilevel Mathematical programming & its solution methods for Stackelberg Games (2-stage Dynamic games with complete and perfect information).