When the competition views your actions as beneficial or at least nonthreatening, it's less likely to retaliate. Conversely, seeing your competitors' actions in the same light can avert a costly price war. Visualizing and anticipating your competitor's moves are the venue of a branch of mathematics called game theory - the study of competitive interaction. Companies use it to anticipate their competitors' reactions in order to improve their own decisions.
Game theory helps firms better assess their own negotiating position.
They can also learn how to change the game they're playing rather than just play the existing one. Sometimes, what you do helps me,'' Nalebuff added. An example is the development of a new airplane. It's important to note, however, that firms must avoid collusion. Another reason game theory is catching on is that firms don't want to be at a competitive disadvantage because they failed to use the tool.