Game Theory in Business Collaboration Ting Hei Gabriel Tsang Department of Computing Macquarie University Sydney, Australia [email protected] Abstract and their privileges. Given a request to access a resource or perform an operation, the service en- Game Theory has been studied in several areas forces the policy by analysing the credentials of such as Mathematics and Economics and it the requester and deciding if the requester is au- helps to choose a better strategy to maximise thorised to perform the actions in the request their profit or improve their quality. However, B2B integration is basically about the secured it does not have many studies about applying coordination of information among businesses game theory to business collaboration. In this paper, we take negotiation of access control and their information systems. It promises to policy between organizations as one of the dramatically transform the way business is con- business collaboration challenges and apply ducted among organisations. Negotiation of game theory creatively on Business Collabora- common access to a set of resources reflects the tion aspect for decision making in terms of sharing preferences of the parties involved. Such improving performance. negotiations typically seek agreement on a set of access properties. The approach of this project would be making Game Theory has been an important theory in our assumption about the business collabora- several areas such as Mathematics, Economics tion first and then analyse the game theory and Philosophy because Game theoretic concepts characteristics. Then, we compare the business apply whenever the actions of any individuals, challenge to the game theory characteristics to form the result. groups, firms are interdependent. Also, it helps them to choose a better strategy to maximise The outcome of this project would be a match their payoffs in terms of quality or profit. In result which mapped a classified business col- terms of business collaboration, we could apply laboration problem model with a game theory game theory to model the business collaboration model. situation such that we can find out a better strate- gy for decision making. 1 Introduction Therefore, the aim of this project is to investi- gate how Game Theory can be applied to Busi- Nowadays, a simple business process involves ness Collaboration aspect for decision making in multiple business partners – customers, dealers, terms of maximising profit or improving perfor- sales representative and logistic company. On the mance. other hand, businesses are increasingly outsourc- In this workshop paper it is constructed as fol- ing key operations and interacting with ever ex- lowings: in Section 2 and 3 are some related re- tending nets of partners. Since different players’ search about game theory and business collabo- decisions can have an effect on selecting the op- ration; Section 4 discusses the methodology how timal solution, the solution selecting process be- we solved the problem; Section 5 presents the comes complicated. analysis outcomes of the research and Section 6 A Business Collaboration is a set of roles inte- recommends the future work for this project. Fi- racting through a set of choreographed Business nally, Section 7 concludes the paper. Processes. Due to lack of trust, policy of access is required for ensure security between organisa- 2 Business Collaboration tions. The access control policy of a single orga- nisation or service is defined in terms of roles A Business Collaboration is a set of roles inte- racting through a set of choreographed Business Transactions by exchanging Business Docu- Also, it has to be consistency which is the core ments. A Business Collaboration is defined by requirement of collaboration. Consistency also the parties in the collaboration; it can be simple needs support from other business transaction or complex, it can include expected and unex- requirements, such as atomicity, isolation and pected actions and the collaboration can allow time constraint to guarantee the consistency in for other than e-Business options. It is about the individual organization as well as the whole capability to transition to human interactions or business collaboration. (Sun, 2007) decisions that may be important to e-Business activity, e.g. a phone call. A business activity 2.3 Challenges in Business Collaboration consists of regular collaborative work among Trust is one of the major challenges in busi- participants to achieve a business objective. An ness collaboration. Many studies have shown that activity structure is a digital schema-based repre- the impediment to online payment is the lack of sentation that describes the properties of a busi- trust in E-business. (Yang et al, 2006) ness activity and that semantically relates it to Current standards in business collaboration the people, artifacts, tools, and events involved in design, due to their pre-defined and inflexible carrying out the business activity. There are also nature, are precluded from accommodating busi- relationships between interacting activity struc- ness dynamics. The challenge is thus to provide a tures. solution in which business collaboration devel- opment can be done in a flexible and adaptive 2.1 Business Collaboration Overview manner. (Fensel, 2001) The first dimension is collaboration aspects Buyers will need to maintain established long- which place emphasis on the different behaviors term relationships with preferred suppliers. of an enterprise in business collaboration: Therefore, a variety of business models are likely to continue to be viable in the marketplace. (Sun, • Before seeking partners to cooperate 2007) with an enterprise will first need to capture The models where the principal faces hidden its private behavior in the internal business action. These types of models are known as mor- process aspect. (Swaminathan and Tayur, al hazard models. Consider a small firm selling 2002) specialized medical equipment via a sales force, • Based on its internal behavior the enter- which currently consists of a single salesman. prise can then specify its capabilities in its The salesman (agent) represents the firm owner externally visible behavior in the partici- (principal) to the clients. The total amount of pant public behavior aspect. (Decker, sales, and hence, the firm’s revenues, depend on 2006) the efforts of the salesman. If the salesman does not work hard, the sales volumes from the new • Enterprise negotiates with other parties contracts are low, or potential customers are lost to establish cooperation. (Orriens et al, to competitors. Thus, the firm owner would like 2006; Orriens, 2006) to design a contract and offer it to the salesman 2.2 Business Collaboration Characteristics with the goal of providing an incentive to the salesman to work hard, such that both parties will The business collaboration characteristics are: mutually benefit. This situation is an example of • Long-time execution. the principal-agent problem. (Axelsson et al, 2002) • Heterogeneous and autonomous business All of the papers contain a clear discussion process communication among multiple about the business collaboration behavior, cha- business participants. (Axelsson et al, racteristics and challenges. However, there is no 2002) relevant work solving the problem with game • cross-organisational asynchronous busi- theory. ness interaction. (Joines et al, 2001) 3 Game Theory • Complex business-oriented transactional semantics. A mathematical theory, developed by J. von Neumann (1903-57) and O. Morgenstern (1902- • Cross-organisational transaction policy 77) in 1944, concerned with predicting the out- coordination. come of games of strategy. 3.1 Game Theory characteristics which any cooperation is enforceable by an out- side party. The Algorithm Game Theory (Nisan et al, Repeated: When players interact by playing a 2007) talk about the usefulness of game theory in similar stage game numerous times, the game is situations arising on the Internet. This is the called a repeated game. foundation reading for the project because it cov- Coordination Game: It is a class of games ers most of the Game Theory terminologies. with multiple pure strategy Nash equilibria in It identifies some main terms: which players choose the same or corresponding Player: Any participant in a game who has a strategies. nontrivial set of strategies and selects among the Also, Game theory is believed to give an op- strategies based on payoffs. timal decision in order to gain maximum profit in Payoffs: In any game, payoffs are numbers terms of business. Perng (Perng et al, 2007) which represent the motivations of players. In all made an argument that Game Theory reveals an cases, the payoffs must reflect the motivations of attractive profit increase for formwork subcon- the particular player. tractors joining a coalition. Strategy: A strategy defines a set of moves or actions a player will follow in a given game. A 3.2 Game Theory Models strategy must be complete, defining an action in every contingency, including those that may not In Andrea’s research, (Schalk, 2003) it stated be attainable in equilibrium. For example, a that Game theory assumes that a player evaluates strategy for the game of checkers would define a various outcomes in terms of the utility derived player's move at every possible position attaina- from them. There are two key points in a co- ble during a game. Such moves may be random, operative game: in the case of mixed strategies. (Webb, 2007) • What is the payoff for each coalition? Game: A situation in which a conflict arises between two or more players. • What payoff each player in the coalition Nash Equilibrium: Nash equilibrium is a set should get? of strategies which represents mutual best res- The benefits acquired by the different mem- ponses to the other strategies. In other words, if bers of the various coalitions are different. Con- every player is playing their part of Nash equili- sistent with the definition of co-operative games, brium, no player has an incentive to unilaterally if the profit gained by a co-operating player ex- change his or her strategy.