New Perspectives on Open Innovation from Game Theory: The Prisoners' Dilemma and the Ultimatum Game

Abstract

Many existing studies indicate that firms today are in the growing competition circumstances, so, although there are other large and small issues to be considered to conclude, collaborations in every corporate level are being regarded as essentials and believed trend, not options any more. Nevertheless, most firms do not seem to have overcome the issues of Chasm, Death Valley, and Arrow's Information Paradox that deter their collaborations. We start this study with the questions on why collaborations between firms are so difficult and t, for what reasons are markets and technologies not likely to be connected. Firms, be they small or large, are more than often interconnected for their business, though it is quite uncertain how many times they might come into contact with. So the case of encouters between firms differs from the cases often dealt with in the game theory that say that it is always better to defect if the number of interactions between players is finite. According to much of the previous research, defection is not the only brilliant solution in the situation in which interactions between firms are not finite. That is, coorperation based on reciprocity and trust between firms can be suggested as their authentic solution to maximize their pies. Through the Prisoners' Dilemma and the Ultimatum game, we will reach rational open innovation strategies and business models through the deductive inference process.