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- The Infinite Game of Private Equity: A Game Theory Perspective
The Infinite Game of Private Equity: A Game Theory Perspective
Best players are those who focus on play, not on winning.
In this article
Introduction
Private Equity (PE) is often seen as a highly competitive, strategic environment where firms strive to outperform rivals, acquire lucrative deals, and deliver superior returns to investors. Traditionally, it is framed in finite terms: transactions are made, profits are reaped, and deals are closed. However, the application of game theory, especially infinite game theory, offers a more nuanced perspective on how PE firms operate. Unlike finite games, where players aim to win within set rules and timelines, infinite games are characterized by long-term survival, adaptation, and continuous evolution. In PE, firms play a game where the ultimate goal is not to "win" but to stay in the game, ensuring long-term success and relevance.
This report explores the "Infinite Game of Private Equity" using key concepts from game theory. It highlights how PE firms maintain relevance, build long-term relationships, manage strategic positioning, and adapt to shifting market dynamics, all while continuing to play the game.
Every Business Segment is an Infinite Game, so Private Equity too
Business, economic activity and trade between people and societies have existed since humans started having surpluses in agricultural and livestock production when we stopped being hunters and gatherers.
Business exists much before any single company is still operating and will exist longer than all the companies that are active today. In all Business landscape rules are flexible and changeable, and new players can often drop out of the game or come in as new players. Additionally, business has no deadline, has no end, so there is not an endpoint where we can argue who is the winner. This is why Business is an infinite game, so players have to play as infinite players, getting rid of the idea of “winning”.
Oldest companies in the world
The chart above shows the top 20 oldest companies in the world. All these companies have been in business for more than 900 years, and as world history has shown, landscapes have changed strongly since each company was founded.
Technological disruptions, changes in preferences and trends, changes in macroeconomic conditions, wars, revolutions and more have impacted on the decision-making processes of these companies. We cannot think that these companies are doing the same and in the exact same way they were doing 1,000 years ago. These companies have shown strong resilience and adaptation, following the ultimate goal of an infinite game: Keep playing.
The surprising thing about these companies is that they still did not win, because the game never ended. These companies just keep playing, beyond all the leaders that have come and gone and all the situations they have had to face, their competitors have been entering and exiting the game throughout history.
