Risk Assessment Using Game Theory – The Case of Lego Report

This report provides a comprehensive analysis of how game theory can be applied to assess and mitigate competitive risks faced by the Lego Company, particularly within the Asian market. It explores key strategic areas including market entry, product launch strategies, technology challenges, and pricing. The report emphasizes the importance of cooperative game theory in identifying and addressing competitive threats. Specifically, it suggests collaborations with educational institutions and media outlets to enhance market entry and product launches. Furthermore, it examines how Lego can leverage technology through video games and updates to engage customers and maintain a competitive edge. The report also addresses the importance of competitive pricing. The analysis concludes that cooperative game theory provides an effective framework for Lego to navigate the competitive landscape, optimize strategies, and ensure its long-term success.

Running head: RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
Risk Assessment using Game Theory – The Case of Lego
Name of the Student
Name of the University
Author Note

1RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
Table of Contents
Introduction................................................................................................................................2
1. Market Entry.......................................................................................................................2
2. Product Launch...................................................................................................................4
3. Challenges in Technology..................................................................................................5
4. Prices...................................................................................................................................6
5. Recommendations...............................................................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

2RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
Introduction
Game theory is in essence a mathematical framework that assists managers in the
process of identifying and anticipating the actions that are taken by other people, especially
competitors (McNutt 2019). Strategic issues are well represented by managers through the
use of game theory by focusing on the main players that are involved, the feasible strategies
that are being undertaken by such players and the possible outcomes of such strategies, as
well as the payoffs that are associated with these outcomes (Dresher et al. 2016). There are
different types of game theories such as the cooperative and the non cooperative game
theories, the former focusing on the role that is played by cooperative groups or coalitions
which interact with one another only when payoffs associated with outcomes are known to
them. This report engages in an analysis of how the economics of game theory can be used
to understand the ways by which the Lego Company can identify and take on potential
competitive risks that present the company in the Asian market (Dresher et al. 2016). The
report identifies how the company can detect potential competitors and deal with them in an
effective manner, eliminating risks in the bargain, through the use of specifically the
cooperative game theory. The report concludes that cooperative game theory is by far one
of the most effective models by which risks associated with competition can be determined
and dealt with in an efficient and accurate way.
1. Market Entry
Market entry is one of the most challenging aspects of business operations, especially
when it comes to launching a new product or a service. When it comes to a company like
Lego, one of the best ways by which the company can enter the Asian market where its
presence is still not as dominant as it can be is to enter into cooperation with educational
groups (Chen et al. 2015). The Lego building game is essentially aimed at building skills and

3RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
techniques in logical thinking, reasoning and analysis in young children. The Lego building
blocks are designed to teach young players the art and the science of symmetry and why this
is important. Educational institutions will have a good idea of how Lego needs to design its
toys and games in order to come up with products that will boost early intellectual
development in children in the most effective way. So prior to entering the Asian market, it is
imperative for a company like Lego to reach out to educational enterprises that are situated in
prominent Asian cities and towns to arrive at an understanding of what exactly is needed in
order to help children foster their intellectual skills as best as possible and when it does so, it
will be able to manufacture toys for the market that will immediately attract the attention and
interest of buyers and produce good results as well, giving buyers the value for the money
that is spent on the Lego toys for children (Chen et al. 2015). Parents of young children are
certainly going to feel satisfied with what Lego has to offer when they see their young kids
learning well and doing well in school as a result of playing with Lego toys so frequently.
The science and the art of constructing building blocks and other toys that foster intellectual
development and that can be launched or entered in the Asian market for profit, is something
which can be acquired by the Lego company only when it first enters into a collaboration
with educational institutions of this purpose. The payoffs associated with such a product
launch will be far better known when collaborating with educational enterprises, the latter
having a perfect understanding of what is to market a product that will aim at assisting the
development of intellectual abilities (Dresher et al. 2016).
By cooperating and collaborating with educational institutions the Lego Company will be
in a position to take on its rivals in the Asian markets in the most effective manner. The
educational companies or enterprises will inform Lego about what the demand and supply
curves are like for educational materials pertaining to the development of logical and
analytical reasoning abilities. The company will therefore get an understanding of exactly

4RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
what type of toy or product that it has to come up with that will be perceived by its target
customer base more favorably than related toys and products made available by competitors
would. Owing to its cooperation and association with educational enterprises, there will be
more value added to the products being manufactured by Lego and it will be able to enter the
Asian market with a far greater degree of confidence and take on its competitors here
successfully than it would have, had it been working entirely on its own (Booth 2015).
2. Product Launch
For the successful launch of its products in the Asian markets, the Lego Company
needs to not only have educational enterprises and institutions in its corner, but it should also
enter into a collaboration with movies and television series that are aired in well known Asian
cities and towns, as the use of Lego bricks in such media can vastly increase the sales for the
company and root out any competition that may be posed by rivals. Endorsements are needed
from well known educational enterprises and television channels at the time of launching
Lego products in Asia. This is needed so that customers gain an understanding of the brand
value associated with Lego bricks and feel more inclined than ever to go ahead and buy such
bricks for their children. Lego should not hesitate to tie up with both educational enterprises
as well as movie and television program producers in order to get the media attention that it
needs at the time of the launch of its productions in the Asian markets. It needs to be
associated with big names in television, in the world of entertainment and in the world of
education in order to convince buyers in the Asian markets that the Lego toys are worth
purchasing and in doing so, it will be able to take on its rivals in the most successful of ways
(Fiskel 2015).
When it comes to the world of entertainment in particular, Lego can tie up with
renowned names in television or well known actors in the Asian scene who can promote the

5RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
Lego products in the form of advertisements that are broadcast in both the movie halls as well
as on television. While a substantive investment is going to have to be made by Lego for this
purpose, the fruits of doing so will be many for Lego. It is only by cooperating and
collaborating with renowned names in entertainment as well as on television and with well
known names in education, that the outcome of business operations for Lego in the new
market are likely to be successful. Such cooperation is going to add plenty of value to the
games and toys that Lego markets in Asia, far more than similar products which are being
made available by rival competitors, whose toys and bricks may be good, but which lack the
appeal and the educational components that the Lego toys are characterized by, thus serving
the entertainment and intellectual needs of children far better than the competitors are able to
do (Booth 2015).
3. Challenges in Technology
Challenges in technology, especially the rapid advancement of technological
developments that is taking place in the gaming industry worldwide today, are what can be
successfully addressed by a company like Lego provided it invests a substantive amount of
money in technology and it collaborates with the right people in this respect in order to be
able to take on its competitors successfully (Elkind and Rothe 2016). Lego is already credited
with having established Lego Life, a fantastic social network that allows children who are
less than thirteen years of age to share their creativity stories when it comes to the use of
Lego building bricks. Lego can now proceed to collaborate and cooperate with video game
developers to come up with beautifully designed video games that address the curiosity, the
interest and the attention of children in the age group of six to thirteen years and even for kids
who are in the early teens that is, children who are in the age group of thirteen to fourteen
years. Video gaming is in fact something that people of all ages are known to be very fond of,

6RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
so Lego is definitely to attract a wider number and range of customers when it decides to
cooperate with video gamers to come up with brand new Lego video games for the Asian
markets. Such video games should be those that customers can easily download from the
internet through the use of apps or which they can buy from e commerce platforms in an
efficient and quick manner (Elkind and Rothe 2016). Apart from creating valuable Lego
video games to capture the attention and the internet of Asian buyers, Lego can also deal with
the challenge of technology effectively by enabling the video game users to update their
games in every four to six months. This will give Lego customers the option of taking
advantage of the latest techniques and features associated with the Lego video games, thus
providing them with the enjoyment and the engagement that is needed to avoid buying
similar gaming products that are marketed by rivals and competitors. For this purpose Lego
needs to seek out the best video game developers in the Asian scene who will provide the
company with the technological expertise and techniques needed to produce Lego video
games that are far better in standard, form and design compared to brick gaming products
sold in Asia by rivals and competitors (Kristiansen et al. 2018).
4. Prices
Lego is going to have to market its products at competitive rates in order to be able to
keep its rivals at bay while also catering to the interests of customers at the same time. Lego
toys and games are normally known to cost more than the average toy in the market, given
that such building bricks are designed to improve cognitive abilities in children apart from
simply providing them with an excellent dose of entertainment. The Lego brand is already
well known in many different parts of the world for this reason alone, while is why customers
are always willing to spend more than the average amount to buy Lego building bricks for
their children. The Lego toys are also characterized by terrific durability and can be used for

7RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
several months or years without showing signs of wear and tear. Hence it is always
worthwhile for customers to buy Lego toys, even though the price tends to be on the higher
side for these, for the most part (Lewenberg et al. 2015). Yet it must be remembered that
manufacturers of toys and games similar to that of Lego are many in number in the Asian
markets, which is why the target customer base for the Lego products in Asia would want to
buy from rivals and competitors instead of buying from Lego. For this purpose alone, Lego
has to tie up with educational enterprises and video game developers to produce Lego toys in
bulk that can be sold at competitive prices, catering not only to the high end customers in the
Asian markets but also to customers who belong to a middle income budget and who would
not have the capital or the financial resources that are needed to buy Lego toys. Tying up with
video game developers and educational enterprises to produce high quality and innovative
Lego games will also enable to the company to offer rebates and discounts on such products
from time to time (Chen and Alexander 2010). Given the value that will be added to the Lego
games through the tie ups mentioned, there will be a huge demand among the target
consumer base in the Asian markets to buy the Lego toys and especially so if these are made
available at discounted prices. Lego will be able to sell far more of its products in a limited
span of time by offering a discount or rebate on its brick gaming toys (Liu et al. 2016).
5. Recommendations
 Viewing the market as a game can definitely help Lego root out competition in the
Asian markets in the most successful of ways. All the company has to do is find the
right players who will play alongside the company in order to get it the sales and
revenue that it sets out to achieve. Lego therefore has to cooperative and collaborate
with educational enterprises and video game developers in addition to movie and
television producers to give Lego toys the gigantic appeal that these need to be the

8RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
prominent toy product in the market, easily defeating the efforts of competitors and
rivals in the most effective of ways (Lozano et al. 2016).
 Lego needs to weigh the pros and cons of collaboration and cooperation not only
before its own management team but also with the management of the enterprises that
it is looking to tie up with for the effective marketing of its toys and games.
Collaborators need to realize or understand that the profit margins are going to be
huge for both parties involved in the collaboration in order for them to go ahead with
such cooperation (Rosano and Hubert 2015).
 To ensure that disputes do not arise in the process of collaboration, Lego must outline
possible outcomes of the collaboration and the high payoffs that are likely to be
associated with such collaboration right before the collaboration actually takes place
(Besanko et al. 2009). This can be achieved by undertaking in depth research and
survey of the Asian markets. Educational enterprises in Asian countries and video
game developers in the Asian countries must be made to understand the benefits of
the collaboration process and the high payoffs that will be assured as a result of the
collaboration and only then can the collaboration actually be implemented (Rosano
and Hubert 2015).
Conclusion
Thus, the use of cooperation to combat rivals and competitors in the market is an
approach that can most definitely be utilized by Lego in order to make its presence felt in the
most prominent of ways in the Asian market, a market whose potential the company has not
tapped, as yet. By playing alongside educational enterprises and video game developers and
even entering into collaboration with movie producers and television series producers, Lego
can market its toys and gains with far more excitement and appeal than it would have had it

9RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
chosen to combat its competitors all on its own. It will be able to convince customers by
virtue of the fact that such toys are being shown on movies and television, that these are
designed for educational development and that these can be played as video games, that Lego
toys are the products to buy and own rather than similar products available in the market as
produced by rival or competitor companies.

10RISK ASSESSMENT USING GAME THEORY – THE CASE OF LEGO
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