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Game Theory in Internet Marketing

Discussion in 'BlackHat Lounge' started by Scipio00, Feb 16, 2012.

  1. Scipio00

    Scipio00 Regular Member

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    Some things aren´t clear for me when i negociate services/domains or other stuff in internet marketing:

    Let´s say we have the following szenario:


    -You have a domain that You would sell for 1000$ or more but not for 999$.

    Now somebody offers You 1100$ for it. It seems like a clear deal but let´s say You see a chance higher than 50% that he accepts 1200$ or more than 33,3% that he accepts 1200$ then You should ask him for this price - correct?

    In the real world that will often kill your longterm clients or people won´t make business in general with You. People hate behaviour like that and sometimes they kill 6 Million people because they have less game theory understanding. But that´s the internet, so for example if i sell a domain on Sedo i will never see the seller again.

    Also if he says no and leaves You can still offer to sell it for 1100$ (even if You feel stupid).

    So in this cases my strategy to offer a higher price is financially fine, right?


    But what is in this szenario:

    -I want to take a taxi and i´m negociating with the taxi driver
    -He has 50% of his time waiting time
    -While driving he makes a profit of 30$ an hour, while waiting nothing.
    -Big city, i will never see the driver again

    Now if i offer him 16$ for an 1-hour drive he should accept because it is above his overall true hourly rate. But he will say no, because he wants to get paid for the waiting time, too.

    In a szenario that doesn´t repeat his best option would be to say yes (if he assumes that i won´t offer more) because otherwise he has to wait for the next client.

    If every taxi driver would think like that they would destroy their whole business but it seems completly +EV in this szenario that he doesn´t accept. So does this stupididy protect them for destroying their own business or do i miss anything?

    Please some opinions about that!
     
    Last edited: Feb 16, 2012
  2. satyawrat

    satyawrat Jr. VIP Jr. VIP

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    I think I will order a new book on game theory. Thats all I can think after reading what you wrote.
     
  3. smallgiant

    smallgiant Regular Member

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    Someone plays too much poker and probably doesn't get that game theory only applies truly at macroeconomic scales. Your taxi driver only cares about himself. He doesn't want half his rate. He wants the entire rate.

    Game theory. A can of worms to truly discuss and break down. Now I'm just having horrible memories of biological altruism and global oligopolies.
     
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  4. nojrellum

    nojrellum Newbie

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    People set prices for a reason. I think you are generalizing your situations and omitting many variables.
    Good luck.
     
  5. satyawrat

    satyawrat Jr. VIP Jr. VIP

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    I will like to quote Seth Godin here.

     
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  6. spruitje

    spruitje Junior Member

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    With the website selling example you overlooked the fact that even though you'll probably never see the other party again your reputation may suffer (kinda like the itrader system on BHW) and thus the EV of future rounds. Furthermore you should not underestimate the power of customer loyalty: sell him the first site for 1000, especially if he is willing to go as high as 1200 and chances are he will come back for more. Depending on your profit margin, you could see a greater profit even if he only comes back once. So by trying to maximize the outcome in game 1 you could be blocking the path to a profitable game 2/3/4 etc.
     
  7. tony23

    tony23 Regular Member

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    As a former taxi driver I would think 'cheap cunt'....but I do like game theory, some people think you can run the world by it.
     
  8. Lebron2727

    Lebron2727 Junior Member

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    having been a professional gambler for seven years all I can tell you is,

    read Sklasky....

    it there is a 50% chance for a less than 10% increase in payout shall I take it even if it kills the original offfer, made me lol



    yesterday i was discussing game theory with a friend, game theory and internet marketing actually have a lot of common ground... i hoped that you were talking about that :)
     
  9. Scipio00

    Scipio00 Regular Member

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    @Lebron

    I have 5 years of professional Poker, too.

    But unless You play the highest stakes (10kNL+) i think game theory is nearly worthless. There are too much 5k NL player, who have no chance to solve the problems i discussed. They reframe it to "balancing their lines", so it gives them an easier point of view without these nasty numbers :)
    People who play 400NL and play game theoretical correct, usually suck at poker.
    In the szenario where we want to charge 1200$ domain we double our profit (10% are sometimes huge!).



    @Smallgiant.
    Yes of course, that´s why i stated out that he won´t be a customer in the future. You can change the first szenario and say everything what is above 999$ gives you an earning. Would You rather have 101$ earning or 201$?
    Most people i know simply say, no, i want to get at least 20% of my investment extra without knowing why. They are like the taxi drivers. Do you have been ever to a 5 Million+ city and You had the same taxi driver several times? Do You ever sold a domain on Sedo and You got the same client again?
    I think best line for the taxi driver would to take the offer for 16$ and hope that the next customer isn´t a dick :)
    So what happens if all taxi driver do that? They kill their own business, or not? Which factors i miss?

    Here is another point regarding business relationships:
    Company A sells to Company B. Company A has thousands of other companies who sell the same. Now they don´t go down with their prices, instead they offer other things like "being friends". I know a lot of consulting people and everybody in this business knows how important business relationships are.

    So for me it´s like: Buy from my company and i give You friendship, too. This friendship let You make extra money.
    If they just lower the prices, other companies would tell: "Hey, why do you charge me more than You charge this company?"
    But in this case the other company would feel stupid saying:"Hey, why do you charge this company the same but they get friendship/a favor free of charge extra?". So they use relationship as abstract value for lower their own prices - is that right? Do i miss factors?
     
  10. Lebron2727

    Lebron2727 Junior Member

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    good that you played poker too man!