Game Theory in Strategic Management: Enhancing Decision-Making in Competitive Business Ecosystems

Abstract

This paper studies the application of game theory in enhancing management practices and strategic decision-making within competitive business environments. Traditional management approaches, often rigid and hierarchical, fail to account for dynamic market interactions, necessitating a shift toward game-theoretical frameworks that model strategic interdependence among firms. By analyzing key concepts within game theory, this study demonstrates how game theory optimizes decision-making in pricing, market entry, and collaborative strategies. However, practical challenges persist, including unrealistic assumptions of perfect rationality, information asymmetry, and oversimplified models that neglect human behaviour. Thus, the paper also explores future directions, including AI-driven models and crisis management, while emphasising the need for adaptive implementation. Ultimately, integrating game theory with real-world business insights enables firms to transition from reactive to proactive strategies, fostering sustainable competitive advantages in ever-evolving industries.