Amazon and Game Theory
With Amazon’s recent acquisition of Whole Foods, companies like Kroger and Walmart are fearing the worst. This is because Amazon announced that in order to compete against its other food competitors, Amazon will be drastically reducing the prices on Whole Foods Market’s products. Although Amazon is aware that this will cause it to lose some money, they are willing to proceed with this action because they know that it will attract all of its competitors’ customers, thus getting rid of their competition.
After Kroger and Wal-Mart learned about Amazon’s actions, they too began to speak out on how they will compete against Amazon in their own ways. Wal-Mart is following in Amazon’s footsteps by also spending billions to reduce its food prices as well as spending money to incorporate online food shopping to some of its locations. Kroger, on the other hand, will be impacted greatly because they are not in a place where they can drastically cut its prices, so they are hoping to invest in their technology.
Clearly, it is simple to see that this is a classic example of game theory being put into place, and more specifically, a game in which only one player has a strictly dominant strategy. This is most distinctly seen in the game between Amazon and Kroger. In this game, Amazon has the clear advantage over Kroger, because not only does it have the funds to create a drastic drop in Whole Foods Market’s prices, but also has advantages from Kroger’s disadvantages. Kroger is facing financial loss as it is losing popularity, therefore restricting it from making competitive actions. All of these factors allow Amazon to proceed with its actions without regard to Kroger’s actions, thus proving it to be the sole player with a dominant strategy and leaving Kroger in an unfortunate situation.
https://www.wsj.com/articles/amazon-doesnt-need-to-make-money-on-groceries-putting-pressure-on-wal-mart-kroger-1503874354