Game Theory Predicts Behavior of Tech Giants
http://www.theregister.co.uk/2011/09/23/android_patent_war/
This article details the ongoing legal battles between tech giants Apple and Samsung. The two companies have been involved in worldwide patent suits and counter-suits since earlier this year. Apple is claiming that Samsung has infringed on its design patents by making their smart-phones and tablets look too similar to Apple’s iconic iOS devices. Samsung claims that Apple is illegally using wireless technology in its devices that Samsung holds patents for. The 21 separate lawsuits exist in many different countries throughout the world because each country has its own laws regarding these types of disputes between tech companies.
I claim that these behaviors are the result of a Nash Equilibrium and could be easily predicted by a simple game theory analysis of the situation. We will model a game where both companies have the option to file suit or do nothing. If both companies do nothing their payoffs will be identically zero. If both companies sue each other, they will both get a negative payoff, say –X where X represents the costs associated with legal fees, time lost to the suit, and a potential legal stalemate. If one company sues and the other does nothing, the company that sues will get a payoff of Y while the company that does nothing gets negative payoff of -Z. This correlates with the situation in Australia where Apple has won an injunction on one of Samsung’s devices. The payoff Y that Apple receives from this is due to increased market share in Australian markets since they no longer have to compete with Samsung’s product. The negative payoff –Z that Samsung received was due to a loss of market share and in the Australian markets. But the game I just described has a Nash Equilibrium; both players will choose to sue! They both have incentive to sue because they want the positive payoff Y but if they both sue they get the negative payoff –X. For can infer from this game that the following inequality holds: X<Z. Therefore, if both companies decide to sue, neither has an incentive to deviate from that strategy.
This is a very simplified version of the game that Apple and Samsung are playing. For example, just because one company sues does not mean they will win. But they can’t win without trying to it is still expected that they will sue. This is why so many suits and countersuits keep popping up between these two tech giants. More recently, Apple has filed suit against Samsung in Samsung’s home country of South Korea. And Samsung has responded by saying they will file for an injunction in South Korea against the next iOS device to be released, even though they have no idea what technology this device uses or what it even looks like!