Game Theory and Oil

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Exxon Mobile and Game Theory Analysis

ExxonMobil is the world's largest publicly traded international oil and gas company that operates in an industry that is dominated by several large firms (Exxonmobil, N.d.). On the international level, there are barriers to entry that make it difficult for new entrants to emerge, the product is considered a commodity, and as a result many have argued that this industry most likely follows the oligopoly market structure. The oil and gas industry as a whole is made up of three main types of activities in either upstream, midstream, or downstream industry segments which include such functions as exploration, extraction, transporting unprocessed raw materials, processing the materials in refineries, and further downstream conversions which will eventually lead to the finish products.

The oil and gas industries is arguably the most important industries in the world given the fact that it fuels much of the energy that drives modern economies. Given the importance of the industry to virtually all areas of the global society, many people have worked to understand the options available to the main competitors in the oligopoly by building an applying different models to better understand the dynamics with in this situation. The industry is market by high demand from all sectors as well as an increasing number of environmental concerns and regulations (Castillo & Dorao, 2013).

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Furthermore, many of the agreements made within this industry are based on joint venture projects that carry significant amounts of risk. This has prompted the use of advanced models to help deal with the levels of complexity that arise in the arrangements in this industry.

The game theoretic model is a simulation model for strategic interaction in a rivalry situation between two players, each focusing on the rival behavior in an attempt to anticipate their likely action to determine their own; the model is built on the assumption of rational behavior, which is common to most microeconomic models (Roy, 2003). Basically, if you were to consider how your competitors might act to best optimize their own self-interest based on their situation, then you could devise your own strategy to optimize your own strategy that is built upon an estimation of your competitors most likely action. Other advantages of using models that can handle massive levels of complexity is that they can be preprogrammed in ways that allow for quick decision-making processes based on information that is….....

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