Literature Review: Game Theory And Microeconomics

2.Literature Review

2.0 Game theory and Microeconomics

A game can be defined as a formal description of a strategic situation. It is a complete mathematical summary of a strategic interaction setting. Likewise, Game theory is the formal study of decision-making in which several players must make choices that potentially affect the interest of other players.

Game theory addresses the dilemma in conflict and cooperation. The concepts of Game theory apply whenever the actions of several agents or players are interdependent within a competitive situation. These agents include individuals, groups, firms or a combination among these.

Formal applications of Game theory requires knowledge of the identity of independent actors or players, their preferences

Nash John (1950) proposed that the division payoffs from agreement in a bargaining problem depend entirely on the relative strengths of the two parties bargaining position. Nash’s model fits within the cooperative framework because it doesn’t concentrate on offers and counter offers but focuses mainly on the outcome of the bargaining process. The key concepts of Nash equilibrium recommends a strategy to each player that the player can not improve given that the other player follow the recommendation. Since players are rational, each player expects their opponents to follow the recommendation as well.

Kenya Airways and RwandAir being players as international airlines are expected to respect contractual agreement for them to have maximum payoffs and cooperation in their international relations.

2.2 Airline Coalition and

2.Strategic behavior that leads firms to improve its competitive position or market power, and

3.The pursuit of organizational culture or to learn the results when one or both partners need to acquire a significant knowledge of the other partner.

While partnerships can be seen as a different way of governance than those of markets and hierarchies, there is a considerable difference in the formal structure of the partnerships themselves. The wide variety of organizational structures implies that firms face a set of options to achieve structure their alliances [7]. The different paths of evolution that follow the partnerships can have important consequences on their performance. Therefore, understanding the evolution of alliances provides critical insights on how these links can be managed in the best way. Firms can make significant changes that may change the original design of any part of the alliance once it is already done [8]

Kenya Airways (KQ) and RwandAir (WB) have announced reaching their intent of forming