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Biggest mobile device makers’ Game Theory – Samsung vs Apple

Today, at the age of 56, one of the biggest icons of IT industry just passed away. As you all know, this is the story of Steve Jobs. Steve Jobs was the legendary leader of Apple who was in the midst of developing the first Apple personal computer and ipod and iphone series. His dominant leadership propelled the company to become one of the leading conglomerates in mobile device industry in the world. As one of the top five mobile device producers, Apple now has quite a bit of control power over the market.

On the other hand, there is Samsung, originated in South Korea, competing against the number one spot in mobile device industry worldwide. Since the year of 2002, South-Korean Company started to take over the industry furiously. In the year of 2010, Samsung controlled 20% of entire market following 2nd largest after Nokia.

Since the beginning of this semester, there has been a lot of article and news about Samsung and Apple. As Apple launched its first lawsuit against Samsung in Germany, it is exponentially becoming one of the biggest problems in this field. Now, Samsung just announced that the firm filed lawsuit against iphone in Europe and this action led Apple’s countersuit against Samsung again in UK this time.

On the superficial level, it seems like another high-tech lawsuit among companies. Nevertheless, it is a very interesting case where game theory concept we learned in class can be applied. In terms of game theory, Samsung is player A and Apple is player B. Two strategies for both firms are 1) filing a lawsuit and 2) not filing a lawsuit. The value or payoff in this game will be measured in terms of whether the players’ profit increases or decreases. Positive represents increase in profit and negative represents decrease in profit, which is loss. In order to determine payoff values, it is necessary to look at each case.

Case1) Samsung suing Apple: By suing Apple, assuming winning or at least damage on public image, sales of Apple iphone will go down. In turn, sales of Samsung mobile products will increase because it is a substitute product. Thus, it looks like it is good for Samsung to sue no matter what happens which is a property of strictly dominant strategy. However, Samsung is biggest D-Ram supplier of Apple. Therefore, reduction in Apple’s sales implies reduction in Samsung’s sales of D-Ram as well. This counter acts against Samsung’s profitability.

Case 2) Samsung not suing Apple: By not suing Apple, sales of Apple products will increase, with new iphone 5 and current trend. This will cause reduction in Samsung’s mobile product since once again it is a substitute. However, increment of Apple’s sales will cause Samsung’s sales to go up as well because Samsung is the biggest D-Ram supplier as I mentioned before. This counter acts against Samsung’s loss in reduction in direct sale.

Case3) Apple suing Samsung: By suing Samsung, assuming winning or at least damage on public image, sales of Samsung will go down. In turn, sales of Apple will increase with same reason. As a result, Samsung can refuse to supply D-Ram or increase to price of it. This is a key component and cause loss in some method to Apple due to high switching cost.

Case4) Apple not suing Samsung: By not suing Samsung, keeping good relationship with supplier, Apple can keep its production cost low. Nonetheless, with same reason, sales of Apple will decrease as sales of Samsung increases.

By considering all 4 cases combination, it is obvious that there is no strictly dominant strategy for both companies. In other words, suing or not suing both will have positive and negative payoff at the same time for both companies. Therefore, there is no one strict strategy that will always provide one biggest payoff. All aspects must be considered.

In conclusion, this current war between Samsung and Apple can be solved using mixed strategy and by finding mixed equilibrium considering all of these aspects. Therefore, this example clearly shows that how hard it is to find a pure equilibrium with having a strictly dominant strategy and thus, a mixed equilibrium must be used and applied into real world problem.

 

Reference

http://www.nytimes.com/external/gigaom/2011/09/14/14gigaom-apple-files-countersuit-against-samsung-in-the-uk-26526.html?scp=1&sq=samsung%20apple&st=cse

http://www.onlinemarketing-trends.com/2011/02/global-mobile-market-share.html

http://www.nytimes.com/2011/09/05/technology/samsung-removes-tablet-computer-from-show-after-injunction.html?_r=1&scp=2&sq=samsung%20apple&st=cse

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