Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

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  • Persuasion Technologies in the Digital Age: The Good, The Bad, and the Ugly

    Persuasion technologies include methods and techniques derived from behavioral psychology and behavioral economics used to shape the choices people make. The favorable environment for using such methods, enabled by people’s increasing use of computers and smartphones, has led to the proliferation of their use by software developers.

    Like any technology, persuasion technologies can be used for good or evil. However, the increasing dependence of people on digital technologies, together with the increasing prevalence of software developers’ use of persuasion technologies has created emergent behavior in society that’s downright ugly: the emergence of extremism, outrage, and divisiveness among members of society.

    This analysis is closely tied to a previous analysis I performed, “Information Distortions on the Internet.”

    This analysis will examine

    • The nature of persuasive technologies
    • The game between software developers and users that has created an environment of good, bad, and ugly
    • How the environment might be changed to create more favorable social outcomes
  • Playing the $1 Coin Game

    Conversion to $1 Coin: US Government

    Conversion to $1 Coin: Private Industry

    Conversion to $1 Coin: Consumers

    Special Interest Groups

    Other Issues

    Efficiency of US Currency

     

    A recent article in the WSJ, “The Buck Stops Here: $1 Coins to Be Curtailed” by Jeffrey Sparshott, reports that the US Mint is suspending production of $1 coins, due to lack of demand. The issue of replacing the US $1 bill with a $1 coin has been debated for quite some time. When I was in graduate school 20 years ago, one of my professors was commissioned to perform a cost-benefit analysis of replacing the $1 bill with a $1 coin, and I worked as a research assistant on the project. I spent my summer that year contacting various representatives in the economy who would be affected by the conversion and collecting information from them on the costs and benefits. I learned some very interesting things.

  • Playing the Amazon Monopoly Game

    Amazon Ecosystem Components

    Amazon Segments

    Amazon Sales, Income, and Margins

    Amazon Methods of Competition

    Anti-Trust Issues

     

    Amazon is leaving a large pile of battered companies in its wake as it increasingly steals sales away from traditional bricks and mortar companies and decimates their market shares. Some of the better-known victims include: Barnes & Noble (books), Macy’s (clothes and home goods), Toys R Us (toys and baby products), Staples and OfficeMax (office supplies), Etsy (handmade products), and Best Buy (electronics).

    In fact, there’s even an index, the Bespoke “Death By Amazon” index, that tracks the performance of 54 public companies most at risk from Amazon:

    Bespoke publishes the “Death By Amazon” as a way to track performance of the companies most affected by the rise of AMZN. Companies included must be direct retailers with a limited online presence (or core business based on physical retailing locations), a member of either the Re- tail industry of the S&P 1500 Index or a member of the S&P Retail Select Index, and rely on third party brands. We view these attributes as the best expression of AMZN’s threat to traditional retail. The index is designed as both a performance benchmark and idea generation tool for our clients.

    On July 17, 2017, Patti Domm reported in “Amazon's victims: These stocks have lost $70 billion so far this year” that the index is down 20% so far this year.

    As Amazon’s seeks to dominate yet another market segment – the grocery business – through its plans to purchase Whole Foods, we must question once again whether or not Amazon is “too big” (however we choose to define bigness).

    This analysis examines

    • The various players in Amazon’s market ecosystem
    • The extent to which Amazon covers its ecosystem
    • How Amazon earns its money to finance its operation
    • The methods Amazon uses to compete
    • Other potential anti-trust issues
  • Playing the Black Friday Game

    The Origin of Black Friday

    What’s at Stake?

    The Evolution of Patterns in Retail Sales

    Some Issues Regarding the Black Friday Game

     

    The Origin of Black Friday

    The origin of the name Black Friday is described in “Black Friday (shopping) explained” as follows:

    The day's name originated in Philadelphia, where it originally was used to describe the heavy and disruptive pedestrian and vehicle traffic which would occur on the day after Thanksgiving. Use of the term started before 1961 and began to see broader use outside Philadelphia around 1975. Later an alternative explanation began to be offered: that "Black Friday" indicates the point at which retailers begin to turn a profit, or are "in the black".

    It has only been recently that Black Friday has been the busiest shopping day of the year. Previously, the busiest shopping day of the year had been the Saturday before Christmas. As Miranda Marquit describes it in “What Is Black Friday – History of the Holiday Shopping Phenomenon”

    Interestingly, the day after Thanksgiving has only recently become the biggest shopping day of the year. Between 1993 and 2001, it ranked between fifth and tenth on the list of the busiest shopping days. In fact, for years, the busiest shopping day was usually the Saturday before Christmas.

    But things changed in 2002. That was the year Black Friday took the lead, and it has remained the busiest shopping day of the year ever since, with the exception of 2004 when it was second.

  • Playing the Consumer Food Game

    Food Engineering

    Description of the Consumer Food Game

    Types of Solutions to the Obesity Problem that Won’t Work

    Types of Solutions to the Obesity Problem that Are More Likely to Work

     

    Everyone knows that America has a weight problem. According to one source, “More than two-thirds of U.S. adults are overweight or obese.” Everyone also knows that all you have to do to lose weight is to consume fewer calories than you burn off. So why can’t so many people just do it?

  • Playing the Currency Game

    The Structure of the Currency Game

    Definition of Volume of Trade

    Patterns in Volume of Trade by Country GDP

    Patterns in Trading Partners

     

     

    In my previous blog entry, “Making Sense of the Currency Wars”, I discussed the basics of exchange rates – how they’re defined, how they’re determined, and the pros and cons of having a strong or weak currency – and I discussed currency wars – how they work and how they affect participant economies. I also defined how currency (exchange rate) wars form a game between countries, where the losses of losers would appear to far outweigh the gains of winners. In this blog entry, I take a closer look at the currency game.

  • Playing the Cyberwar Game Part 1: Game Theory Basics of War

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    This section on game theory basics of war is relatively brief and non-comprehensive. The purpose of including a discussion of traditional war within an analysis of cyberwar is to provide some basics and points of reference for better understanding the challenges faced in cyberwar.

    War forms a game because the actions taken by each interlinked player affect the payoffs to all other players. As such, players must act strategically, taking into account the actions they think other players might take.

     

    Potential Actions

    With traditional forms of war, players generally have three options with respect to the actions they may take: (i) They may choose not to arm themselves with weapons, (ii) they may choose to arm themselves in preparation for war against other players, or (iii) given that they have armed themselves, they may choose to attack other players.

  • Playing the Cyberwar Game Part 2: Defining Cyberwar

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Part 1: Game Theory Basics of War, I described the three potential options players may take in traditional war: don't arm, arm, or attack. I described the benefits and costs associated with arming for defense, as well as the benefits and costs associated with arming for offense or attacking. I indicated that there are ambiguities in interpretaions by players associated with the actions  other players are taking: sometimes arming can increase a player’s security, while other times, arming can decrease a player’s security. I explained that there are two crucial variables that contribute to the ambiguity: (i) whether defensive weapons can be distinguished from offensive weapons, and (ii) whether defense or offense has the advantage.

     

    Now that we have some understanding of the basics of war – the actions players are able to take, the benefits and costs associated with the different actions, and the crucial variables for determining the stability of the situation – we can move on to cyberwar. The first issue to cover is the definition of cyberwar.

     

    Why Do We Care How Cyberwar Is Defined?

    The terms cyberattack and cyberwar have been tossed around in the media, generally without the writers having provided a clear definition of terms. Why do we care about distinguishing cyberattacks from cyberwar and defining exactly what constitutes cyberwar? It is important because there are vital implications for international law and the appropriate use of policy for addressing the actions.

    Part of the reason the terms have been used in such a slippery way is that cyberattacks represent a new form of attack that has not been available before now. Furthermore, attempting to frame cyberattacks in terms parallel to those of traditional, real-world attacks has proven to be problematic and not at all clear-cut.

  • Playing the Cyberwar Game Part 3: Unique Properties of Cyberwar

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    As I mentioned in the previous part of the analysis, cyberattacks represent a new form of attack, and attempting to frame cyberattacks in terms analogous to those of traditional, real-world attacks has proven to be problematic. Part of the reason for the difficulties stems from the unique properties of cyberwar as compared with those encountered in cases of real-world war. This section discusses some of the more significant unique properties of cyberwar that distinguish it from traditional war.

     

    Cyberwar is Doubly Dangerous

    In cyberwar, offensive weapons cannot be distinguished from defensive weapons, and cyberwar tends to favor offense. Together, these two properties make cyberwar “doubly dangerous” as per Jervis’s characterization depicted in Figure 2.

    In cyberwar, offensive weapons cannot be distinguished from defensive weapons, because the same technology that is used for offense is also used for defense. As Randall R. Dipert describes it,

  • Playing the Cyberwar Game Part 4: Cyberwar Strategies

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Part 1: Game Theory Basics of War, I described the three potential options players may take in traditional war: don't arm, arm, or attack. I described the benefits and costs associated with arming for defense, as well as the benefits and costs associated with arming for offense or attacking. I indicated that there are ambiguities in interpretaions by players associated with the actions  other players are taking: sometimes arming can increase a player’s security, while other times, arming can decrease a player’s security. I explained that there are two crucial variables that contribute to the ambiguity: (i) whether defensive weapons can be distinguished from offensive weapons, and (ii) whether defense or offense has the advantage.

    In Part 2: Defining Cyberwar, I indicated that cyberattacks represent a new form of attack, and attempting to frame cyberattacks in terms analogous to those of traditional, real-world attacks has proven to be problematic, in part because cyberwar represents a new kind of war attempts to provide parallels between traditional war and cyberwar has proven to be problematic. I distinguished cyberattacks, cyberwar, and cyberterrorism from one another based on (i) whether the actor was government or civilian and (ii) whether the motivation was personal/commercial or political in nature.

    In Part 3: Unique Properties of Cyberwar, I discussed some of the more significant unique properties of cyberwar that distinguish it from traditional war: (i) Cyberwar creates a security dilemma since (a) it's difficult to distinguish offensive from defensive actions in cyberspace, and (b) offense has the advantage over defense; (ii) in cyberspace it's difficult to know who the perpetrator of a cyberattack is; (iii) in cyberwar, there are generally no human injuries or death; and (iv) many cyberweapons are one-time-use in nature.

    In this section, the last section of the analysis, I explore several defensive and offensive strategies for players engaged in cyberwar.

     

    Defensive Strategies

    Decrease Incentives to Attack

    As I mentioned in the previous section, cyberwar has the potential to create a security dilemma, since (i) offensive weapons cannot be distinguished from defensive weapons and (ii) cyberwar tends to favor offense. One player might simply be trying to defensively arm itself against cyberattacks from other players. However, by doing so he may induce insecurity in other players that might lead them to arm themselves for cyberwar and possibly even attack the player preemptively.

    To mitigate against the potential for a security dilemma – and particularly against the possibility of preemptive attacks by others – a player who wishes to arm himself to defend against cyberattacks can increase the transparency of his actions to better clarify (signal) his intentions to other players.

  • Playing the Doctor-Patient-Insurance Company Game, Part 1

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    The healthcare industry has been undergoing a massive state of transition recently, especially since the American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law in 2009, and the Affordable Care Act (ACA) (Obamacare) was signed into law in 2010.

    The ARRA required healthcare providers to adopt electronic medical records in order to continue to receive current levels of Federal reimbursements. More specifically, “Federal Mandates for Healthcare: Digital Record-Keeping Will Be Required of Public and Private Healthcare Providers” states:

    As of January 1, 2014, all public and private healthcare providers and other eligible professionals (EP) must have adopted and demonstrated “meaningful use” of electronic medical records (EMR) in order to maintain their existing Medicaid and Medicare reimbursement levels.

  • Playing the Doctor-Patient-Insurance Company Game, Part 2

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Part 1 of this analysis, I described the main issues facing Doctors: (i) decreasing reimbursements, (ii) divergent reimbursements by location, (iii) transition from fee-for-service to pay-for-performance, (iv) increasing costs, and (v) increasing regulations.

    In this part of the analysis, Part 2, I describe the main isssues facing Patients and Payers.

    In the last part of the analysis, Part 3, I will discuss the tensions (conflicts) between the different sets of players that are engendered by the different incentives each player faces.

  • Playing the Doctor-Patient-Insurance Company Game, Part 3

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Part 1 of this analysis, I described the main issues facing Doctors.

    In Part 2 of the analysis, I described the main isssues facing Patients and Payers.

    In this last part of the analysis, Part 3, I discuss the tensions (conflicts) between the different sets of players that are engendered by the different incentives each player faces.

  • Playing the Dynamic Pricing Game

    Price discrimination may be defined as selling the same thing to different people for different prices. Price discrimination can take many forms, such as volume discounts, price premiums, or market segmentation. Suppliers regularly use many different forms of price discrimination, which people generally don’t object to.

    Some suppliers use dynamic pricing, a sub-category of price discrimination, in which prices change over time with market conditions. Consumers have been used to the fact that prices for airline tickets and hotel rooms change constantly, and that different people end up paying different prices for a seat on the plane. While uncomfortable with the practice, consumers have generally come to accept this type of dynamic pricing (what choice do they have?).

    Over the past few years, dynamic pricing has become more widely used by sellers as a means of supplementing shrinking margins in an increasingly competitive world. As more information becomes easily available in digital form, pricing algorithms used to support dynamic pricing systems have been able to draw upon more and more information to hone prices and increase profits.

    A more controversial sub-category of dynamic pricing is personalized pricing, which uses personal information on each customer to tailor prices specifically to that customer.

    This analysis examines the different types of price discrimination, how they increase profits, why they are becoming increasingly prevalent, and some emergent issues surrounding their use.

  • Playing the e-Book Game

    The e-Book Pricing Battle

    The following is a brief history of the e-book pricing battle that has been taking place. The passage quotes heavily from three articles:

    “Publishers, Amazon in Flux in e-Book Pricing Fray” by Phil Wahba and Alexandria Sage, Reuters  

    “Amazon Looking Foolish in e-Book Flap” by Therese Poletti, MarketWatch

    “Cost of an E-Book Will Be Going Up” by Motoko Rich and Brad Stone, NYT

    Being first to market, Amazon established a $9.99 e-book pricing model.

    Amazon was first on the market with an electronic book (e-book) reader (e-reader), the Kindle.  Being first to market and having a large market presence together provided Amazon with enough leverage vis-à-vis publishers as to be able to establish a low, fixed sales price of $9.99 for all sales of e-books to Kindle users. This single, low, fixed price for all books is analogous to Steve Job’s iTunes music store pricing model, which initially sold all songs for 99 cents each.

  • Playing the Financial Aid Game

    Clash between Ideology and Reality

    The Financial Aid Game

    What's the Value of Attending College?

     

    A recent article in the NYT, “Placing the Blame as Students Are Buried in Debt” by Ron Lieber, presents the case of a woman who graduated from NYU with $100,000 in student loans, and who is having great difficulty paying the loans back.

  • Playing the Food Technology Game

    Introduction

    The players in the Food Technology Game include

    • Government
    • Farmers
    • Food Companies (Brands)
    • Retailers (Grocery Stores and Restaurant)
    • Consumers

    Government establishes standards and regulations, which affect the price, health, and safety of food supplied by Farmers, Food Companies, and Retailers.

    Farmers have different technologies available to them for increasing the productivity of their food supplies, such as machinery, chemicals, genetically engineering, and information/communication technologies.

    When it comes to demand for food, Consumers care to greater or lesser extents about

    • Low Price
    • Convenience
    • High Quality
    • Healthy Food
    • Moral or Sustainable Food

    That is, Consumers have different preferences over the use of certain technologies by Farmers, Food Companies and Retailers. Furthermore, Consumers’ preferences are dynamic – they change over time – in response both to new information and to social influences.

    Aside from the re-engineering costs, there are also time lags associated with changing the formulations of food supplies by Farmers, Food Companies, and Retailers.

    Given

    • The changing nature of Consumers’ preferences,
    • Together with the costs of changing food supplies,

    Farmers, Food Companies, and Retailers must choose which types of food to supply, based on their expectations of the quantity and longevity of demand for different food types by Consumers.

    This analysis examines these different dynamics in the Food Technology Game.

  • Playing the Healthcare Insurance Game

    Healthcare Premiums under Alternative Scenarios

    Players' Actions

    The Obama Healthcare Plan

      

    Healthcare Premiums under Alternative Scenarios

    I was thinking about the various situations and implications associated with the current healthcare system and some of the changes that have been proposed. I wanted to get a better handle on what, exactly, each of the issues means in terms of dollars spent by people paying into the healthcare system. To this end, I created a little numerical model that lets me play with the different scenarios to see what they each mean in dollar terms.

    The assumptions I’m making that form the general layout of the model are:

    • There are 100 people in the population.
    • The population is distributed into three classes, high, medium, and low, based on the level of lifetime healthcare spending per person.
    • Each person in the population that pays into the healthcare system makes a payment every month for healthcare from the time they are 18 years old until the time they die.
    • The monthly payments made by the portion of the population that pays into the system exactly cover the total lifetime healthcare costs of the population.
  • Playing the Marijuana Market Transition Game

    Download PDF

    Timeline of US Marijuana Laws

    California Is Different from Other Legalized States

    Description and Implications of CA Legislation

    Marijuana Supply Chain Regulations and Realities

    Players of the CA Market Transition Game

    CA Market Evolution to Date

    Future Market Evolution

     

    California is currently transitioning from illegal and semi-legal markets for marijuana to legal markets. The black and grey markets for marijuana in California are enormous in both size and scope. For the State to successfully transition to a legal market, it must reign in the size and scope of black market activity. Will the State be able to do this?

    Key players in the Marijuana Transition Game include:

    • State and Local Governments
    • Marijuana Growers
    • Marijuana Distributors
    • Marijuana Dispensaries/Retailers
    • Recreational Users
    • Medical Users
    • Black Market Suppliers

    This analysis examines how the market has evolved to date and how we think the market will continue to evolve in the future.

  • Playing the Microbial Resistance Game, Part 1

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    Infectious diseases are the second leading cause of death worldwide. Since their discovery in the 1940s, antibiotics have been the primary treatment for infectious diseases. However, over time, many diseases have become resistant to the antibiotics that have been used to treat them, causing tens of billions of dollars in added treatment costs and millions of deaths globally.

    This analysis analyzes the factors (game) involved in (i) the supply and use of antibiotics to treat disease, and (ii) the eventual resistance of many of these diseases to the use of antibiotics.