Facebook, WhatsApp and game theory

http://www.hindustantimes.com/punjab/chandigarh/facebook-whatsapp-and-game-theory/article1-1188823.aspx

earlier this month Facebook bought a messaging service called WhatsApp for 19 billion dollars. This article talks about how Facebook used game theory to make such a big decision. The reason Facebook bought this company was to become a major player in mobile internet. WhatsApp has 450 million subscribers and is one of the biggest player in the group messaging culture.

Facebook used game theory and what we learned about auction to land this deal with WhatApp. Facebook knew that google also had interest in the company and that they had a bid around 10$ billion Facebooks best strategy was to bid their true value for the company so they could outprice their competitor. This led them to bid 19$ billion. Facebook faced a decision they could not bid a lot and lose they payoff in the mobile internet and watch google gain the payoff and do better than facebook, they could have both not bid on the company and stay where they are now, or they could both bid on the company and whoever bids the most receives the payoff of having the technology for the price they bid. Facebook couldn’t trust google not to bid so the only option they had was to outbid google because they would have had better technology than facebook and in the long run be more successful.

I think its really interesting to see one of the biggest companies in the country using game theory to gain advantage over another really large company. When i can see what we are learning in class taking place in the real world it makes it that much more interesting. I do find it interesting that google wasn’t more aggressive with their strategy, unless their true value for the product was really 9 billion dollars less but then it seems to me that facebook might have overvalued the company but that will only be seen in time.

 

 

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