Develop and describe a microeconomic model that is responsive to the service demands of your market.

Applying Game Theory to Strategy

Prior to engaging in this discussion, please read Chapter 16 in the text and review any relevant Instructor Guidance. It is suggested that you review the recommended articles to glean any helpful information. Imagine that you own a pharmacy in your area. One of your competitors launches a “We will not be undersold” campaign, which promises consumers 150 % of any difference between its prices and the advertised prices of other pharmacies. Evaluate the social issues in your community as well as the economic culture that is influencing this type of pricing competition. Develop and describe a microeconomic model that is responsive to the service demands of your market. Based on your conclusions, how would you react to this situation and with what business strategy would you approach this? How might you apply game theory to the creation of your strategy?


Required Resources Required Text

1. Lee, R. H. (2015).  Economics for health care managers (3rd ed.). Chicago, IL: Health Care Administration Press. Retrieved from

a. Chapter 17: Regulation

b. Chapter 18: Behavioral Economics


Recommended Resources Articles

1. Bowblis, J. R., & Lucas, J. A. (2012). The impact of state regulations on nursing home care practices. Journal of Regulatory Economics, 42(1), 52-72. doi: Retrieved from the EBSCOhost database.

· This article assesses the effect of the minimum quality standards of deficiencies and nurse staffing requirements on the nursing home care practices of physical restraint, indwelling urinary catheter, and feeding tube use. National longitudinal data on nursing homes reveal that the effect of specific deficiency citations on care practice use depends on the clinical complementarity or substitutability of the deficiency and the specific care practice (Bowlbis & Lucas, 2012).

2. Cantor, J. C., Thompson, F. J., & Farnham, J. (2013). States’ commitment to medicaid before the Affordable Care Act: Trends and implications. Inquiry, 50(1), 71-84. Retrieved from the EBSCOhost database.

· Medicaid insures more than 65 million low-income people, and the Affordable Care Act of 2010 gives states the option to enroll millions more. Historical trends in state Medicaid effort possess important implications for health policy going forward. Nearly all states steadily ratcheted up their Medicaid effort in the period from 1992 to 2009, holding out promise that most will sustain their programs and ultimately participate in the expansion authorized by the Affordable Care Act (Cantor, Thompson, & Farnham, 2013).

3. Dowd, S. (2004). Applied game theory for the hospital manager: Three case studies. Health Care Manager, 23(2), 156-161. Retrieved from the EBSCOhost database.

· This article reviews the more complex aspects of game theory than those presented in a recent HCM article. Following a basic overview of terminology and simplified examples, case studies are presented to show the hospital manager how game theory is a useful modeling strategy for predicting human interactions and the potential outcomes of certain decisions, especially economic ones (Dowd, 2004).

4. Levaggi, L., & Levaggi, R. (2010). Strategic costs and preferences revelation in the allocation of resources for health care. International Journal of Health Care Finance and Economics, 10(3), 239-256. doi: Retrieved from the EBSCOhost database.

· This article examines the resources allocation process in the internal market for health care in an environment characterized by asymmetry of information. We analyze the strategic behavior of the provider and show how, by misreporting its cost function and reservation utility, it might shift the allocation of resources away from the purchaser’s objectives (Levaggi & Levaggi, 2010).

5. Westhoff, W. W., Cohen, C. F., Cooper, E., Corvin, J., & McDermott, R. J. (2012). Cooperation or competition: Does game theory have relevance for public health? American Journal of Health Education, 43(3), 175-183. Retrieved from the ProQuest database.

· In this paper, we use game theory to understand decisions to cooperate or to compete in the delivery of public health services. Health care is a quasi-public good that is often associated with altruistic behavior, yet it operates in an increasingly competitive environment. With mounting health care regulation and changes in privatization, altruistic arguments give way to more competitive rationales for market decisions (Westhoff, Cohen, et al. 2012).