Research: Game Theory: Mathematical Models Provide Insights into Hospitality Industry Phenomena

Abstract

Game theory is a mathematical modeling tool that considers the interaction among participants in economic activity. This article introduces some of the basic concepts of game theory, and demonstrates its applicability to hospitality industry research. The paper discusses essential elements of a game such as players, actions, strategies, payoffs and equilibria. The author explains how the information structure of a game determines its outcome, and examines the solution concepts of Nash Equilibrium in a simultaneous game. The Leader-Follower game and the concept of mixed strategies are also introduced. The study identifies topics currently discussed in the hospitality literature that are likely to benefit from this methodology. The discussion covers themes such as product differentiation and room rate policies, reputation and service quality, mergers and acquisitions and franchising.