It seems that in no matter what industry you look at, there is always competition. It may be one giant corporation against another; such as Coca Cola vs. Pepsi or Microsoft vs. Apple. Other times it may be one large company against many smaller ones, for example, Starbucks against many different independent or small-chain coffee shops. Many, including the U.S. government believe this is the way it should be because it prevents corporations from gaining too much power and creating a monopoly. A monopoly is defined as “a sector or industry dominated by one corporation, firm or entity” (Monopoly, n.d.). The government has set in place antitrust laws to ensure this does not occur. A monopoly can be dangerous because without competition a company
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The basis of the prisoner’s dilemma is there are two parties that have two choices, to look solely look out for their best interests or to cooperate with the other party. The scenario mostly described when dealing with the prisoner’s dilemma is two criminals who have been arrested for the same crime and are being questioned by police (Nash Equilibrium, n.d.). Each criminal is offered a lighter sentence if he testifies against the other. Their other choice is to remain silent. If the first criminal gives up the second one, the he is free to go and the second one will have a ten-year sentence, and vice versa. However, if both remain silent, they both will receive a one-year sentence. Finally, if both testify against each other, both will receive a five-year sentence. Now, each criminal must decide whether to solely look out for himself and possibly leave without serving time, or risk serving five years. On the other hand, if he remains silent, he has the possibility of serving either one year or up to ten. In every example of Prisoner’s Dilemma, making a decision based on personal interest may seem like the most desirable option, but it may lead to a worse outcome (Prisoner’s Dilemma, n.d.).
Dominant Strategy If a decision-maker takes the dominant strategy approach, he will always choose what is in his best interest. In the prior example of the two criminals, this means …show more content…
This will make each a profit of $1.5 million. In a dominant strategy, a company will do what is best in their interest. If one company chooses not to advertise, it risks the chance of taking a hit and making only $1 million. However, by advertising, the company is guaranteed to make at least $1.5 million, and has a possibility to make up to $2.8 million. This is the strategy most likely to be used by companies. This is a Nash equilibrium because one company will advertise regardless of what the other company does.
Conclusion
Learning and studying game theory and its components can be very beneficial to business leaders. By taking Nash equilibrium and dominant strategy into consideration, companies can develop more effective strategies, and outweigh cost and benefits. Like in the example of the two tobacco companies, rival companies may find that the best approach to maximize profits is to cooperate and come up with an agreement. This also helps prevent the market structure from becoming a monopoly, therefore, it is important that companies continue to utilize these
The basis of the prisoner’s dilemma is there are two parties that have two choices, to look solely look out for their best interests or to cooperate with the other party. The scenario mostly described when dealing with the prisoner’s dilemma is two criminals who have been arrested for the same crime and are being questioned by police (Nash Equilibrium, n.d.). Each criminal is offered a lighter sentence if he testifies against the other. Their other choice is to remain silent. If the first criminal gives up the second one, the he is free to go and the second one will have a ten-year sentence, and vice versa. However, if both remain silent, they both will receive a one-year sentence. Finally, if both testify against each other, both will receive a five-year sentence. Now, each criminal must decide whether to solely look out for himself and possibly leave without serving time, or risk serving five years. On the other hand, if he remains silent, he has the possibility of serving either one year or up to ten. In every example of Prisoner’s Dilemma, making a decision based on personal interest may seem like the most desirable option, but it may lead to a worse outcome (Prisoner’s Dilemma, n.d.).
Dominant Strategy If a decision-maker takes the dominant strategy approach, he will always choose what is in his best interest. In the prior example of the two criminals, this means …show more content…
This will make each a profit of $1.5 million. In a dominant strategy, a company will do what is best in their interest. If one company chooses not to advertise, it risks the chance of taking a hit and making only $1 million. However, by advertising, the company is guaranteed to make at least $1.5 million, and has a possibility to make up to $2.8 million. This is the strategy most likely to be used by companies. This is a Nash equilibrium because one company will advertise regardless of what the other company does.
Conclusion
Learning and studying game theory and its components can be very beneficial to business leaders. By taking Nash equilibrium and dominant strategy into consideration, companies can develop more effective strategies, and outweigh cost and benefits. Like in the example of the two tobacco companies, rival companies may find that the best approach to maximize profits is to cooperate and come up with an agreement. This also helps prevent the market structure from becoming a monopoly, therefore, it is important that companies continue to utilize these