Definition
Game theory analyzes competitive interactions where outcomes depend on interdependent choices (your payoff depends on rivals’ moves) to identify equilibria and credible commitments.

Introduction
Pricing wars, capacity expansions, platform rules—all are games. Anticipating rivals’ responses can prevent value-destroying moves.

Explanation

Games: simultaneous (Bertrand/Cournot), sequential (Stackelberg), repeated, signaling.

Tools: payoff matrices, best responses, Nash equilibria, backward induction.

Strategies: commitment (capacity, contracts), deterrence (limit pricing), cooperation (tacit/explicit where legal), signaling (warranties, irreversible investments).

Design: change the rules—switching costs, multi-homing frictions, exclusive deals (within law).

Limits: real markets have noise, regulation; use as lens, not oracle.

Key Takeaways

Think two moves ahead; avoid naïve best-response traps.

Credible commitments beat cheap talk.

Sometimes the win is to change the game (platform rules).

Real-World Case
A streaming platform used exclusive originals (commitment) and annual bundles (switching costs) to deter churn and soften price competition.