Product Price Control using Game Theory: A Case Study of

a Fish Price in the State Of Terengganu

Muhamad Safiih, La,b and Mohd Noor Afiq, R a
a
Jabatan Matematik, Fakulti Sains dan Teknologi, Universiti Malaysia Terengganu, 21030 Kuala Terengganu
b
Institut Biologi Marin, Universiti Malaysia Terengganu, 21030 Kuala Terengganu

Abstract. The increase in the price of goods is often a concern among the community. This is caused by factors that
beyond of controlled such as a natural disaster, and others that cause the demand exceed the current supply. However,
what is more concerning is the increase in price of goods due to the individual who raises the price in order to earn higher
profits. Therefore, to overcome this problem, a method of price controls using Game Theory is considered. The Game
Theory realizing a form of observational on the action and effects that occur by an individual or group to maximize the
utilization under certain circumstances. The study was conducted on prices of 14 fish commodities in the state of
Terengganu and also to see the cooperation effect between players of commodity prices. Data were analysed by using the
software Gambit. The result shows that there is significant increase due to the influence of middlemen. The findings also
shows that the price controls are applied at a set time, then it was applied to other times, prices are more stable and
profitable returns to all parties can be maximized.
Keywords: Cooperative Game theory, Nash Equilibrium theory, fish price.
PACS: 02.50.Le.

INTRODUCTION
Game theory is a mathematical case studies and modelling of multi-person decisions making problems [1].
Player or known as personnel that involved in decision making interacting with another player where every action
and decision taken to change a situation, or better known as a game.
In Malaysia, fish commodity is sold by two different categories. 60% market demand fresh supplies of fish and
the rest are involving fisheries sub-products. The nature of recent study show that at a certain time, the supply for
such commodity decreasing compared to the demand. This turn of event is crucial to determine the surge or prices
for the domestic fish commodity.
Based on such problems, the Game Theory seems fit to determine the cause of the problems and to analyse the
best possible solution for the matter involved.

GAME THEORY
Game Theory is a mathematical model stream of study the function of various sub-problems in deciding the
result or any argumentative mathematics models. In a decisive decision, most decision makers will interact with
each other in a specific field called Game. In other words, the act behind each player will influence the decision of
other players.
There are various ways of classifying Game Theory. The number of player, the nature of cooperation formed,
number of information known to each players, time and others factor are crucial to determine each category and sub-
category of Game Theory. [2][3] classified and represent Game Theory category and sub-category based on the
Figure 1.

Proceedings of the 21st National Symposium on Mathematical Sciences (SKSM21)

AIP Conf. Proc. 1605, 1128-1133 (2014); doi: 10.1063/1.4887749
© 2014 AIP Publishing LLC 978-0-7354-1241-5/$30.00

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 Static games of complete
information

Dynamic games of
complete information
Non-cooperative games
Static games of incomplete
information
Game Theory
Dynamic games of
incomplete information

Cooperative games Cooperative games with

transferable utility
Cooperative games with
non-transferable utility
FIGURE 1. Game Theory Classification

This part focusing on construct general mathematical model. Figure 1 shows the schematic for Cooperative
Game With Transferable Utilities.
In cooperative strategy, the player could decide to utilize the high yield for their interest or to form an ‘alliance’
for the same purpose; to increase alliance high yields. Said that if and only if they involved in the alliance, there
must be a certain requirement that need to be met. But the things is, based on basis contradiction, both players have
their own intention to gain the most profitable yield throughout the alliance system. Assume that N is the amount of
players in a strategic game, where n-players is delegated as a pair of (N,v), where v represent the function that
construct a relationship in a real set V(S) and been delegated as a sub-set of ,. v( ) = 0.
In the function, the value of N represent the biggest combination and v is the function for the combination, also
represent the value of pay-off for each cooperation S, and also act as a sub-set of N. If S been developed, then each
and every player will gain a yield that been represented as v(S) (Transferable Utilities). Then v(S) also known as the
value of S, which required the value not equal to zero.
If the correlation was preserved, hence the value of v(S) could be divided into all the players to form a pay-off
matrices xϵ that satisfy n therefore:

(1)

Meanwhile the quality of a game described as:

(2)

So to solve all the game-related cooperation, the few things that should be highlighted is that fair conditions for
returns based on the amount of cooperation in doing the game. Therefore, the determination of the core system for
Nash equilibrium should be done to ensure that data can be searched using the software returns.
[3] introduce a similarity in pricing for telecommunication systems. If so, the equation can be adapted in the
wholesale and retail pricing based on the simple balance is represented by:

(3)

Whereas, for the determination of the retail price was set as:

(4)

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 where;

TC = Wholesale Price
TR = Retail Price
c = Goods Cost
Z = Volume of Goods
k = Number of Workers
N = Cost of Workers
= Profits
= utility costs

So, take advantage of activities available here are subject to the selection region for the benefit of the operators
involved.
[4] states to get the best results, each one individual should do his best for himself and also for the interests of
the group. By using the theory of "Nash Equilibrium" in economic applications, it appears that with each of the
agencies in a common mission can produce something better if they work together to achieve that goal. Thus, this
study found the pricing of commodities review, all individuals and groups involved should develop an equilibrium if
you wish attain control of the market and stable prices for the supply of marine products.
Based on Equations (3) and Equation (4), it appears that a determination of prices in the real situation
commodity is determined by the condition of marine supplies that are available. However, the real problem appears
when the commodity represented by Z is manipulated by a number of factors represented by the attitudes of people
in an organization, and then we can form an attitude model as follows:

In a function, indicates for N;

Where the function for cost for players V, V = 1, ... ..., N
Strategic set for players V, V = 1, ... ..., N
Whereby the vector
(5)
(6)

APPLICATION OF GAME THEORY: PRICE OF FISH COMODITY

Analysis for 14 identified fish commodity in three years starting from early 2011 to mid-2013 found that an
average fish supplies and prices in Terengganu has uneven raising pattern as follow.

TABLE (1). Average Fish Supply in Terengganu Based on Years

Type 2011 2012 2013
Domestic Landing 4 515 4 139 4 328
Imported Fish Commodity - - -
Aquaculture Production 451 601 650
Total 4,966 4,741 4,978

Table (1) show the indication of average fish commodity landing and local fish production in Terengganu. From
this study, local consumption and needs of fishery in Terengganu came from inside production and non-dependable
to outer sources. This study also shows that local fishery are meant to be used locally and the extra fresh fishery
product never been exported.

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 FIGURE 2. Cost Price, Wholesale, and Retail Price for Fish Commodity in 2011 to March 2013

Figure 2 represent average pricing on local fishery commodity from cost price, wholesale price and retail price.
From the study, the fish sales system for fresh commodity divided into three main stages. The first stages, involving
cost pricing for local commodity of fish, here the retailer; The Wholesaler, Retailer, and The End User, will be able
to purchase fresh fish with a low price. The second stages are called User-to-User stages, whereby the entire players
are involved in purchase and reselling. And the finale stage is the End-User stages; whereby the commodity finally
reached the End User. First sales price is the sales directly fishermen to the consumer, the highest price is the
highest coastal sales in September of 2011 is RM8.62 and which is the lowest value also the same in the month of
February totalling RM2.90. For wholesale sales, most fishermen allow wholesalers to sell their produce in bulk to
the "secondary" and "tertiary" based on need. The highest value is RM10.40 wholesale sales in certain months of the
year 2011 and 2012, while the lowest was RM6.21 on March 2012. Retail sales are the final sales hierarchy
involving retailers and consumers. The highest value is RM13.45 retail sales recorded in April 2011 and the lowest
recorded was RM11.30 for the month of May 2012.

GAMES THEORY APPLICATION FOR CORRELATION BETWEEN PLAYER

Correlation between players in this game and relation of price determination between agencies could be written
in a mathematical form using Game Theory. This mathematical model will determine the pay-off matric and profits
yield for the players and also several factors that affecting them in a game.
Analysis of the relationship is important procedure to determine weightage results in the pricing of goods. For
this purpose, several models have been identified to determine the weightage in the decision for the price goods. In
cooperative games, each player has the opportunity to form a binding agreement to determine the division of "pay-
off" for each level [5].
By Figure 3, the model of supply of fish, this is symbolized by Nash Equilibrium relevant for each player.
Generally all the players have the opportunity to form a strategic cooperation agreement for expected yield. Value
opportunities for fishermen is only 0.333λ to stood in the market fishermen was discussed in Figure 4.2.2 where
fishermen could only get to market through the sale of commodity directly to consumers. While for wholesalers and
retailers who act as secondary entity, have a value of 0.50λ and 1.00λ for each measure used by fishermen. For
tertiary consumers, they are represented as the end-user and each represented by 0.250λ chance to choose.

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 FIGURE 3. Distribution Relationship Model Supply and Purchase

Similarly, if we look at Figure 4, where it shows the power to supply and purchase for each and every player in
the system in which the weightage for each players shown in each determinant line in defining the different lines.

FIGURE 4. Cooperative and Non-Cooperative Game

Through observations and interviews conducted with the government agencies, there are several things done by
government agencies to ensure that the price charged to the consumer is reasonable throughout the time, especially
in a certain economical suitable time [6]. Modelling to determine the price of the goods, i.e. fish commodities prices
been adjusted in each state through the core specification are represented as follows:

FIGURE 5. Goods Pricing Related Government Agency

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 Through strategic modelling for cooperative game, the determinant identified as Ѳ. The fish pricing will be
discuss between KPDNKK with certain agency that represent certain player involved. In this case, LKIM is the
major player representing other cooperative player. This dominant player accumulates ,
whereby 0.75λ power in decision maker given in terms of proposing the price for further agreement. Noted that
LKIM already discuss it terms with other player in cooperative behaviour, where they solely represent them as
interest in gaining the mutual agreement and providing leverage. Here, KPDNKK own the extra 0.25λ leverage in
price deciding. Whereby KPDNKK agree or disagree with the offer [6]. If not, 0.5λ, there is a chance that the
negotiation will be held again.

The pay-off representation will be noted as shown based on the pay-off in Figure 4 and factor affecting in
Figure 5, in a maximum leverage and uttermost yields:

TABLE (2). Pay-off Without Cooperative Strategies

Fisherman {50 : 0.33 λ}

Wholesaler {100 : 0.50 λ}
Retailer {50 : 0.25 λ}
End User {0 : 0.25 λ}

TABLE (3). Pay-off With Cooperative Strategies

Fisherman {75 : 0.33 λ}

Wholesaler {75 : 0.50 λ}
Retailer {50 : 0.25 λ}
End User {0 : 0.25 λ}

CONCLUSIONS
14 types of fish commodity and 4 players had been identified and analysed. After analysis, the best method of
price control had been constructed and conducted at certain peak time of the year for one purpose; to stabilize the
commodity prices and to maximize the profit yield for several players involved. By utilizing the method of price
control from two agencies, the pay-off for each player could be reconciled. However, for the consumers or End
User, they could not benefit from the pay-off of other player because they are apart from the main game and system.
As they are non-significant other than act as the tertiary consumer, they are the most vulnerable to such a volatile
market.

REFERENCES
1. Siegfried, T. 2006, A Beautiful Math – John Nash, Game Theory and A Modern Quest for Code Nature, Joseph Henry Press,
Washington, D.C.
2. Gibbons, R. 1992. A Primer In Game Theory, Harvester Wheatleaf, New York
3. Peleg, B. and Sudholter, P. 2003. Introduction to the theory of cooperative games,. Kluwer Academic, Boston, Mass.
4. Howard, R. 2001. Beautiful Mind – John Nash Quote.1th. Film. Imagine Entertainment. Universal Studio.
5. Harsanyi, J. C. and Selten R. 1988, A General Theory of Equilibrium Selection in Games. Cambridge, MA: The MIT Press,
378pp.
6. Ghazali, 2013. Temubual Kementerian Perdagangan Dalam Negeri, Koperasi Dan Kepenggunaan Negeri Terengganu. Jan
2013.

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