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Game Theory / Competitive Response Grid

L1Decision ModelsEnvironmentdecisionStages 4 to 5

Reference model

A payoff grid for competitive responseA two-by-two payoff grid. Your two options (A and B) run down the side and the rival’s two responses (1 and 2) across the top. Each cell shows your payoff and the rival’s payoff. The bottom-right cell is marked as the equilibrium, where neither side wants to change its choice.THE RIVAL’S RESPONSERESPONSE 1RESPONSE 2YOUR OPTIONOPTION AOPTION BOption A → Response 13 , 3Both hold: good for bothOption A → Response 20 , 4Rival gains at your costOption B → Response 14 , 0You gain at the rival’s costOption B → Response 21 , 1Both worse offEquilibriumIn each cell: your payoff , the rival’s payoff (illustrative numbers).Equilibrium: each side is already doing its best reply, so neither wants to change.Here both would do better at “3 , 3” but cannot get there alone — a prisoner’s dilemma.

Your options run down the side, the rival’s responses across the top; each cell shows what each side earns.

About this model

When your best move depends on what a rival does in return, lay the choices out as a payoff grid. It shows each side’s best reply, where the game is likely to settle (the Nash equilibrium), and whether both sides could do better by escaping it.

John von Neumann & Oskar Morgenstern — Theory of Games and Economic Behavior; John Nash (equilibrium) · 1944 / 1950

How to read it

  • Each cell is one outcome: you choose an option and the rival chooses a response. The two numbers are your payoff and the rival’s.
  • The rival’s best reply to your option is the response that pays the rival most; your best option against a response is the one that pays you most.
  • Where each side is already doing its best reply, neither wants to change: that is the equilibrium. If both sides would be better off elsewhere, it is a prisoner’s dilemma, and the escape is a credible commitment or a different game, not a bigger move.

What this does

Maps out how competitors are likely to respond to a given move before you make it, so you are not surprised by the retaliation.

When to use it

Maturity, in a concentrated market where a pricing or capacity move will provoke a direct competitor reaction.

Not when: A fragmented market with many small competitors — this tool earns its keep against a small number of identifiable rivals who can actually retaliate, not an anonymous crowd.

What happens next

Informs the chosen Generic Strategy and pricing decisions.

Golden thread

Builds on ←

    A starting point: it needs no earlier tool.

    Feeds into →

    • portergeneric

    Framework library: Strategy and environment (layer L1), lifecycle stages 4 to 5.

    Use this tool, free

    Sign in to open the worksheet. Your work saves as you type, the AI can draft the parts you have not filled in, and you finish with an analysis and a 30/60/90-day action plan.

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    Hand-built by Eccellere and reviewed by Eccellere on 02/11/2026. Guidance, not advice: apply your own judgement.