Game Theory with Applications in Operations Management (Springer Texts in Business and Economics)

This book provides a broad picture of solution concepts that are highly applicable to operations and supply chain settings and to explicate these concepts with some of the relevant problems in operations management in multi-agent settings. It discusses different strategic situations like games in normal form, games in extensive form, games of incomplete information, mechanism design, and cooperative games, to solve operations problems of supply chain coordination, capacity planning, revenue and pricing management, and other complex problems of matching supply with demand. The recognition and adoption of game-theoretic modeling for operations and supply chain management problems in multi-agent settings have been a hallmark of operations and supply chain literature research during the last few years. Despite research in operations and supply chain management having embraced both non-cooperative and cooperative game-theoretic solution concepts, there is still an abundance of underutilized concepts and tools in game theory that could strongly influence operations management problems. Additionally, with the increasing digitization of operations and supply chain management, the narrative of problems in these areas focuses on blockchain and smart contracts, platforms, and shared economy. The book profits from these new issues being predominantly multi-agent settings and lending themselves to game-theoretical solution concepts. The book's intended audience is the advanced undergraduate and graduate student community of operations and supply chain management, economics, mathematics, computer science, and industrial engineering. It is also relevant for the research community and industry practitioners who use multi-agent architecture in business problems. Preface How to Use This Book Acknowledgements Contents About the Author 1 Operations Management: A Curtain Raiser References 2 Game Theory: Primitives and Representations 2.1 Preferences and Utility 2.2 Representations of Games 2.2.1 Normal-form (or Strategic-form) 2.2.2 Extensive-form 2.2.3 Characteristic-form 2.3 Game Theory Meets Operations Management References 3 Games in Normal Form 3.1 Examples 3.2 Mixed Strategies in Normal-form Games 3.3 Two-Person Zero-Sum Games 3.3.1 Computing the Optimal Strategies for Two-Person Zero-Sum Games 3.4 Solution Concepts for Games in Normal Form 3.4.1 Pareto Optimality 3.4.2 Domination 3.4.3 Nash Equilibrium 3.4.4 Preplay Communication and Correlated Equilibrium 3.4.5 Bayesian-Nash Equilibrium References 4 Games in Normal Form: Applications in OM 4.1 Inventory Games 4.2 Traffic Planning 4.3 Airline Alliances 4.4 Supply Chain Contracts 4.4.1 Wholesale-Price Contract 4.4.2 Buyback Contract 4.4.3 Revenue-Sharing Contract 4.5 Blockchains References 5 Games in Extensive Form 5.1 Examples 5.2 Strategies in Extensive-Form Games 5.3 Solution Concepts for Games in Extensive Form 5.3.1 Subgame Perfect Nash Equilibrium (SPNE) 5.3.2 Sequential Equilibrium References 6 Games in Extensive Form: Applications in OM 6.1 Capacity Decisions 6.2 Leadership in Supply Chains 6.3 Cheap Talk in Operations Management 6.4 Extensive-Form Inventory Games References 7 Games in Characteristic Form 7.1 Examples 7.2 Some Definitions for Characteristic-Form Games 7.3 Solution Concepts 7.3.1 The Core 7.3.2 Shapley Value References 8 Games in Characteristic Form: Applications in OM 8.1 Inventory Centralization in Supply Chains 8.2 Service Systems 8.3 Towards Sustainability 8.3.1 Recycling Coalitions 8.3.2 GREEN Game 8.4 Logistics Networks 8.5 SHAP Algorithm 8.5.1 Explanation Models 8.5.2 Explanation Models in Quality Modeling 8.6 Aumann–Shapley Pricing References 9 Mechanism Design and Auctions 9.1 Examples 9.1.1 Procurement Problem 9.1.2 Mechanism Design: Comments 9.1.3 More Examples 9.2 Mechanism Design: Formalism 9.2.1 Revelation Principle 9.2.2 Procurement Problem Revisited 9.3 Auctions 9.3.1 Desiderata for Auctions 9.3.2 Efficient Auctions 9.3.3 Optimal Auctions 9.3.4 Combinatorial Auctions References 10 Mechanism Design and Auctions: Applications in OM 10.1 10.2 Sponsored Search Markets 10.1.1 Generalized Second-Price (GSP) Auction 10.1.2 Vickrey-Clarke-Groves (VCG) Mechanism 10.2 Community Sensing 10.3 Physical Internet 10.4 Mechanism Design for Systems Engineering References Index This book combines game theory with critical applications in operations and supply chain management. The recognition and adoption of game-theoretic modelling for operations and supply chain management problems in multi-agent settings have been a hallmark of research in operations and supply chain literature during the last few years. Despite research in operations and supply chain management having embraced both non-cooperative and cooperative game-theoretic solution concepts, there is still an abundance of underutilized concepts and tools in game theory that could strongly influence the operations management problems. The objective of this book is to provide a broad picture of solution concepts that are highly applicable to operations and supply chain settings, and to explicate these concepts with some of the relevant problems in operations management in multi-agent settings, often with conflicting objectives. The book discusses different strategic situations like games in normal form, games in extensive form, games of incomplete information, repeated games, mechanism design, and cooperative games, to solve operations problems of supply chain coordination, capacity planning, revenue and pricing management, and other complex problems of matching supply with demand. With the increasing digitization of supply chain and manufacturing, the narrative of the problems in these areas is focusing on additive and cooperative manufacturing, blockchain and smart contracts, online platforms, and shared economy. The book profits from the fact that these new issues are predominantly multi-agent settings, and lend into game-theoretical solution concepts. The intended audience of the book are research community and graduate students of operations & supply chain management, economics, mathematics, computer science, and manufacturing & industrial engineering. The book is also relevant for practitioners who use multi-agent architecture in business problems.