The Prisoner's Dilemma of Business strategy

The Prisoner's Dilemma of Business

This is a paradox in decision analysis in which two individuals acting in their own interests, eventually leading to a less than desirable outcome. The situation is set up in such a way that both parties are unable to communicate with each other, while they pursue self-interests at the expense of the other party. Following a logical process to act solely on their own behalf, they both face the worst scenario as opposed to the better circumstances if they had acted with each other in mind.

The typical setup involves two individuals who are being interrogated in separate rooms. They are given the option of confessing or not; confessing would guarantee immediate release, while the other receives lengthy imprisonment. If they both confess, then they will both receive shorter sentences, but if neither of the two confesses then they will not be imprisoned because there is no confession implicating the other party.

From this example, we see clearly that the pursuit of self-interest would result in the worst scenario for both parties. The Prisoner’s Dilemma is a popular theory in business and is used in situations where perceived greed does harm.

IN BUSINESS

Another example would lend a scenario where competing companies are focused on their own interests: increasing profits.

Where there are two companies that both sell mobile phones, if one lowers the price, its competitor can either follow suit to remain competitive or retain its current price. If the latter company lowers the price, then they both remain competitive and the influx of new customers will offset the reduced price. If the latter doesn’t, then it becomes the unfavorable party in the market. If the former company had not lowered its price, they both would have experienced growth at a slower rate, providing that the market is stable.

With this insight of rational thinking, how can you use this to your advantage? If the former company had lowered the price of their mobile phones knowing that their competitor would not be able to lower their price, then it would force the market into its favor. Of course, that is dependent on knowledge that is outside the circumstances of a traditional prisoner’s dilemma.

If the latter company has constraints for the manufacture of the product or brand identity to maintain, then significantly reducing its price can make their current audience wary of the product’s real value. On the other hand, not reducing the price will allow a slower growth of new customers and potentially create a transfer of its customer base to the competitor.

In this scenario, the former company, the one who initiates the lowered price point has the upper hand. If the latter company follows suit, then they might alienate customers, but could potentially attract new ones. However, the growth might not outweigh the loss of revenue.

This analysis of decision making is critical for businesses. Posing hypothetical situations allow you to strategize market penetration and stay ahead of competitors.

Invite Your Customers To A New World

Create a unique user experience on your website.

Good Copy Is Just A Few Clicks Away

It's the simplest way to get your message across.

Stay In The Know

.

Related Articles

A Workflow For Brainstorming
strategy

A Workflow For Brainstorming

Are you in constant contact with yourself? Brainstorming with others is one way to refine a rough idea into something much more polished, but internal dialogue can be just as effective if done correctly. Not everyone has the luxury of working with a team or having external advice at their fingertips. This is where you come in. Creating a workflow for conceptualization will help you to nail the execution. Why would you even attempt to create a process like this?

Read More
How To Write For Your Audience
strategy

How To Write For Your Audience

Are you in the habit of saying what you mean or saying what you think will appease your customers? Customers, and their money, are the reason your business functions While your business is a way for you to earn a living and fulfilling some sense of self-fulfillment, the efforts to maintain your business are futile if you cannot attract and maintain your clientele. So when communicating with clients, do you find yourself pandering to them, or are you genuinely trying to solve a problem?

Read More
Talk Is Cheap... Right?
strategy

Talk Is Cheap... Right?

Sales calls are getting much more popular. Fortunately, virtual meetings can help ease the tension when preparing for an important sales pitch. Meeting virtually still offers the safety of distance and the ability to develop trust. However, to those new to sales calls or sales meetings, the transition into online pitches can be rough. Face-to-face interactions will never become something of the past. However, we have been transitioning from in-person interaction to digital interactions.

Read More
Listening & Selling
strategy

Listening & Selling

A keen ear will help you more than you think. Data collection is such a prominent part of sales and marketing. Wherever you go for marketing advice, there is an emphasis on using data to target your audience. This is true, because evidence-based decisional informed decisions; your business is far too important to leave certain things to guesswork, right? However, how do you know what data is relevant? Are you stuck on a hamster wheel of data collection that doesn’t translate to any sales?

Read More
What Do You Want To Sell?
strategy

What Do You Want To Sell?

Are you trying to publish a stylish website or sell your flagship products? Do you want your copywriting to take centerstage or do you want to your visual brand to do all the talking? People say pictures are worth a thousand words, but are you sure your style is giving the full picture? The truth is that website design and copywriting goes hand-in-hand. Here’s why: 1. Collaboration Is Dynamism Have you tried fitting a square peg in a round hole?

Read More
Time Is Money
strategy

Time Is Money

Working as a freelancer in the gig economy has allowed many to find independence they were not afforded with a traditional nine-to-five. It gives freelancers the opportunity to take full control over their capacity, the number of clients they take on and how much they charge. When job markets become unstable, they can find some amount of stability with an extensive portfolio and experience. For those new to working freelance, understanding the gig economy will take some time, patience, and a few failures.

Read More