Teoria De Juegos Aplicada a Interconexion De Operadores

Proceedings of the 2004 Crystal Ball User Conference

PRICE OPTIMISATION BY USING BUSINESS RISK ANALYSIS AND GAME THEORY
Dr. István Fekete Business Services Line of Business Matáv Rt. (Hungarian Telecommunications Co. Ltd.) H-1013 Budapest, Krisztina krt. 55. Hungary Rozália Konkoly PKI Telecommunications Development Institute Matáv Rt. (Hungarian Telecommunications Ltd.) H - Budapest, Magyartudósok krt. 9. Hungary
ABSTRACT In the paper business risk analysis - which is suitable for the identification and evaluation of the risks residing in the competitive environment and to which game theory modeling can be assigned – is presented in brief. The theoretical background and the most important features of the game analysis will be shown in separate chapters. Then a case study elaboratedfor the telecommunications sector will be presented as an illustration how the result of risk analysis regarding the net cost of a given product can be built into the game model taking into consideration the expected behavior of the competitors. The presented model was elaborated in order to be able to determine the optimal price strategy. Keywords: business risk analysis, risk management plan,real options, Monte-Carlo simulation, game theory, oligopoly market, price competition, carrier selection. 1 INTRODUCTION

There is an increasing demand on behalf of the companies to use mathematical tools for modeling risks for supporting their strategic and business decisions. In the areas, where competition exists – like in the telecom sector as well - it is extremely important to satisfycustomer demands on a high level. In addition to that, the main aim of all service providers is to maximize the available profit. We intended to reach these goals in a market environment, where competitors are also present aiming to increase their own profit. To reach the above goals, it is necessary that in their business planning process companies should be able to explore and evaluate the risksassociated with the competitive environment, namely they should take into account the expected strategies of the competitors as well. For this purpose game theory is an appropriate tool. Game theoretical analysis can give an answer to the questions of decision-makers, like “what would happen if…” and help to decide on “what would be the best step if…”. In certain cases the proper application of gametheory may be a decisive success factor, e.g. a ten percent profit can be generated instead of suffering 10 percent loss. 2 BUSINESS RISK ANALYSIS

The objective of business risk analysis is to assess the external and internal risk factors having either positive or negative impact on the strategic and business decisions of a company by using mathematical methods. The risk management plan can beprepared according to the results of the risk assessment. In the competitive market the procedure substantiates the business planning process by exploring and managing the risks again and again as frequently as necessary, resulting in a more realistic business plan for the company. Realizing the need for such a methodology, business risk analysis procedure has been developed at the HungarianTelecommunications Company. According to the results of risk analysis managing the risk management plan and measuring the efficiency of the process is also part of the procedure. By applying the developed procedure, business risks have become manageable. Also the dynamic follow up of the changes has been made possible. Figure 1 shows the application levels where business risk analysis method has to beapplied when preparing business decisions at a company.

Fekete, Konkoly Still, we have to direct the attention to the fact that the different levels are inter-related in terms of practical implementation of risk management, For example, the breakdown of risk factors identified in development of the strategy is also present at the levels of business planning and at the levels targeting the...