Group 6

Game Theory Applications In Marketing

Conflicts are there on India and Pakistan border since 1947

Pakistan has attacked India

India has 2 options

Major Retaliation

Minor Defensive/No response

If India retaliates, Pakistan can attack again(the probability of Pakistan attacking again is 0.4)

Both India and Pakistan are rational players

India can go in the war with 5 different levels, each level has its own cost and benefit for both the countries

Pakistan has already attacked India- we do not consider the cost/damage incurred by Pakistan and India at this stage

The costs break up provided are assumed as the total maximum cost; costs for other levels are taken as a percentage of this (20%of maximum cost for level 1 and so on)

India and Pakistan fight the war at the same level of intensity (If India goes for level 1, Pakistan also goes for level 1)

Benefit to a country is a function of damage to other country, casualties of the other country and compensation received

Cost incurred by a country are Military expenditures, causalities, damaged cause by another country and compensation paid

Benefits should be maximized

Casualties should be minimized

Deadly weapons should be avoided

Cost should be minimized

If India decides to go for war:

1. Level 1: It will not be in India’s benefit. Pakistan will be in benefit, casualties for India will be 20,000

2. Level 2: India will be at benefit only if Pakistan do not retaliate, but Pak will retaliate to minimize its losses, India will be at benefit, India’s casualties 140,000

3. Level 3: India will be at benefit & wins war whether Pakistan retaliates or not, But Pakistan will retaliate to minimize its losses, India’s casualties 352,000

4. Level 4:India will be at benefit & wins war whether Pakistan retaliates or not, But Pakistan will retaliate to minimize its losses, India’s casualties 482,000

5. Level 5:India will be at benefit & wins war whether Pakistan retaliates or not, But Pakistan will not retaliate to minimize its losses, India’s casualties 251,000 (less than level 3).

It is unlikely that India will use Nuke in level 5 because the marginal gain is very small compared to overall gain

If India do not go in war, it will not gain anything and Pakistan will continue to attack. In this case India should do following things:

Build strong defense so that Pakistan do not think of attacking

Let Pakistan knows that if it attacks, India will win the war under all circumstances

Diplomatic ties, more trade

If India goes in war, Pakistan should retaliate in every level of war except fifth.

In level 1 & 2 if it retaliates it will be able to make loses to India, such that India is at loss

In level 5, it is better for Pakistan not to retaliate

Knowing that India will go in war and can impact it at very large, it should not go into war with India. It cannot win war unless and until India decides to go in level 1 & 2, which is unlikely