The concept of economic game theory and matching markets in today's Business Scenario

The concept of economic game theory and matching markets in today's Business Scenario

The Game of Amar, Akbar and Antony

Amar, Akbar and Antony are three business men who were into same kind of business. Antony is the leader in market with maximum share whereas Akbar is second player and Amar is a new entry into the business. The competition is increasing among them as everyone in the market is trying to increase their customer base and revenue. Now, consider a situation where they were each given a gun loaded with only one bullet and asked to shot other.

Killing other here implies to capture the business by beating other player. Amar will shot 1st; Akbar 2nd and 3rd shot will be Antony’s. The chances of killing the other player for each of them are as follows:

        i.            Amar shots => 30% chance of killing either Akbar or Antony

      ii.             Akbar shots => 80% chance of killing either Amar or Antony

    iii.            Antony shots => 100% chance that he kills any of Amar or Akbar with the bullet


Here, the question that arises is “whom should Amar shoot first, Akbar or Antony?” If Amar tries to kill Akbar and is successful in that, Antony’s sure shot will be Amar and he will be out. If Amar misses the shot, he still may have the risk of being shot by any of the two who are bigger players and have more probability than him.


Hence the solution is that Amar should shoot the bullet in air instead of attempting to kill either Akbar or Antony. It is evident from the business scenario that Akbar’s first shot will be Antony and Antony’s first shot will be Akbar because he is his major competitor in the second place. So, let them fight against each other and Amar can continue his business.

One should not kill the competition in the industry to survive in the business. It should remain as that and business players will keep growing and innovating.



Matching Markets in today’s business Scenario

In United States of America, if a person is suffering from a kidney failure, it can be transplanted as per the medical policy provided the donor should be willing to donate his kidney for the needy. Buying a kidney from any person is not allowed and it’s illegal to do so as per the national organ transplant act (Mayes). No matter what might be the reason for kidney failure, doctors will make sure that person is donating his kidney willingly by conducting a psycho test for the donor. They also confirm that kidney is compatible between the donors and recipient. They have to register in the national kidney center and wait. If the kidney of donor is not matching with the recipient, transplantation cannot be done.

What economics speak about this kidney donor program? Noted economist Alvin Roth came up with the model that helps to address the above problem. There were some people who want to donate their kidney and there were also other people who desperately need that kidney for their life but it is not matching.  The online kidney bank emerged and in couple of years, living kidney donations had raised up which helped in bringing lives by having more transplantations.

A                     X          A                  Y

B                     Y          B                   X

             NOT-MATCHING         MATCHING

For example, A wants to donate kidney to X and it is not matching. At the same time Y needs a kidney that matches with A and other donor B’s kidney matches with X. This concept of online matching markets solved the issue which raises several hopes and Alvin Roth had been awarded with Noble prize in Economics (Economist, 2012).

Matching markets are nothing but aggregators on the online platform which caters to the needs of people who are in search for something. For example, Mr. Raj wants to marry a girl from his community who is a graduate from a good family. Online matrimony helps him to find him a right choice. Similarly taxi aggregators like Uber and Ola are also kind of matching markets who are connecting the cab drivers directly to the customers who is in search or need for a cab. In addition to this, online retailers like Amazon, PayTM etc are also catering to this need where they are helping buyers and sellers coordinate in the online market place.

The missing platform (supply) from the market is the level of aggregation in the middle. Matching markets acts as the linkage between the supply and demand in the market.



References:

1. Economist, T. (2012, October 20). Game, set and match. Retrieved november 27, 2015, from The Economist: http://www.economist.com/news/finance-and-economics/21564836-alvin-roth-and-lloyd-shapley-have-won-year%E2%80%99s-nobel-economics

2. Mayes, G. (n.d.). Buying and Selling Organs for Transplantation in the US. Retrieved november 27, 2015, from Medscape Multispeciality: http://www.medscape.org/viewarticle/465200_2

 

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