Modelling corporate rivalry using game theory: Pliva vs. JGL

Abstract

This paper applies game theory to model and analyze the competitive dynamics between two leading Croatian pharmaceutical firms, Pliva Hrvatska d.o.o. and Jadran - galenski laboratorij d.d. (JGL). The primary objective is to assess the strategic interactions between companies through a formalized game-theoretic framework, with particular emphasis on the concepts of Dominant strategies, Nash equilibrium, and the Prisoner's dilemma. Using financial and operational data from 2019 to 2023, the study constructs payoff matrices under two scenarios: with and without the inclusion of innovation costs. The analysis reveals that while innovation is a Dominant strategy for both firms, asymmetric firm size and cost structures significantly affect profitability, with Pliva able to absorb innovation costs more sustainably. However, the absence of a pure Nash equilibrium and the presence of a Prisoner’s dilemma highlight the tension between cooperation and competition. The findings underscore the strategic value of differentiation and innovation, particularly in oligopolistic markets with high entry barriers.