Game theory lessons - Historical example: Tobacco companies

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This lesson on Game theory introduces a real-life example of game theory in practice. We take a look at the tobacco industry in 1971 America.

Hope you will enjoy the video! Here's a link to the full course on Udemy:
https://www.udemy.com/course/mba-in-a...

This video is part of a series of short lessons about Business Strategy. The complete module can be found on Udemy, as a core part of the MBA in a Box course by CEO Valentina Bogdanova and 365 Careers.

The course provides a complete Business Education: Business Strategy, Management, Marketing, Accounting, Decision Making & Negotiation in just under 10 hours.

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Strategy module table of contents:


MBA in a Box: Introduction
1. What does the course cover?

Section: 2

Strategy: An Introduction
2. The role of Strategy and what makes a Strategy successful
3. The difference between Corporate and Business Strategy
4. The importance of the Mission, Vision, Goals, and Values statements

Section: 3
Strategy: The industry lifecycle model
5. The four stages of the industry lifecycle model - An introduction
6. The strategic importance of the industry lifecycle model
7. The Introduction stage - A new industry is born
8. The Growth stage - An industry in its expansion phase
9. The Maturity stage - An industry at its peak
10. The Decline stage - An obsolete industry

Section: 4
Strategy: Porter's Five Forces model - The competitive dynamics in an industry
11. Michael Porter's Five Forces model
12. The threat of new entrants
13. The threat of substitute products
14. The intensity of current competition
15. The bargaining power of suppliers
16. The bargaining power of clients
17. Porter's Five Forces framework applied in practice

Section: 5
Strategy: Game Theory - Studying the interaction between multiple parties
18. An introduction to Game Theory
19. Zero-sum games - approaching situations with a win-lose perspective
20. Non-zero-sum games - considering both cooperation and confrontation
21. Tobacco companies - a real-life example of Game Theory application

Section: 6
Strategy: Focusing on the inside of a business
22. Focusing on the inside of a business - An Introduction
23. A company's lifecycle model - what should be done at different stages

Section: 7
Strategy: Acquiring a competitive advantage
24. The quest for a competitive advantage - An Introduction
25. The importance of building a sustainable competitive advantage
26. The role of resources and capabilities
27. Acquiring an actual competitive advantage

Section: 8
Strategy: The three main competitive strategies
28. The three main competitive strategies
29. Cost leadership - sell cheap
30. Differentiation - be different
31. Niche (Focus) strategy - find your niche market
32. The danger of hybrid strategies

Section: 9
Strategy: Corporate growth strategies
33. The types of growth opportunities companies pursue
34. Organic growth - building a solid foundation
35. Inorganic growth - leveraging M&A transactions
36. Horizontal integration
37. Vertical integration

Section: 10
Strategy: The SWOT analysis framework
38. An introduction to SWOT analysis
39. SWOT analysis in practice - Starbucks


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In 1971, the American government banned cigarette companies from advertising their products on TV. One would think this would hurt their business, as less consumers would see their brand advertising, and this would have a negative impact on sales.

However, what happened is surprising. All four major tobacco companies registered higher profits than before

It turns out that tobacco companies would be better off without advertising, but only if all companies don’t do it. Otherwise, the companies that invest in advertising will grow their brand recognition and will expand their market share, which would allow them to earn more.

Let’s use game theory to describe this situation. We’ll imagine there are only two companies operating in the tobacco market. The outcomes they may choose are the following.
- Win 50 million each, without spending money on advertising;
- If Company A advertises and Company B doesn’t, then Company A will win $60 million, and Company B will win $25 million;
- In the opposite scenario, if Company B advertises and Company A doesn’t, the outcome reverses;
- And finally, if both companies advertise, each wins $40 million.