Games in Normal Form: Applications in OM

In Chap.  3 , we discussed the theoretical underpinnings of games in normal form. This chapter provides a concise overview of important operations management (OM) applications that can be represented in normal-form representation. Newsvendor problem effectively captures the fundamental principles of operations management. In its most basic iteration, as elucidated in Chap.  1 , a decision-maker determines the quantity by carefully weighing the costs associated with inadequate stock levels against the expenses incurred from excessive stock levels. Numerous applications for such models span across fields characterized by transient and uncertain demands. The fundamental assumption is that the decision-maker possesses exclusive authority to influence her payoffs. However, it is important to acknowledge that, apart from uncertainty in demand, the environment can have multiple decision-makers, each driven by self-interest and aiming to control the environment to improve their payoffs. Under these conditions, applying game theory to newsvendor models becomes pertinent and crucial.