Applications to BusinessA classic e

Applications to Business
A classic example of prisoner’s dilemma in the real world is encountered when two competitors are battling it out in the marketplace. Many sectors of the economy have two main rivals. In the U.S., for example, the fierce rivalry between Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) in soft drinks, and Home Depot (NYSE:HD) versus Lowe’s (NYSE:LOW) in building supplies, has given rise to numerous case studies in business schools. Other fierce rivalries include Starbucks (Nasdaq:SBUX) versus Tim Horton’s (NYSE:THI) in Canada, and Apple (Nasdaq:AAPL) versus Samsung (SSNLF) in the global mobile phone sector.
Consider the case of Coca-Cola versus PepsiCo, and assume that the former is thinking of cutting the price of its iconic Coke drink. If it does so, Pepsi may have no choice but to follow suit for its Pepsi Cola to retain its market share. This may result in a significant drop in profits for both companies. A price drop by either company may therefore be construed as defecting, since it breaks an implicit agreement to keep prices high and maximize profits. Thus, if Coca-Cola drops its price but Pepsi continues to keep prices high, the former is defecting while the latter is cooperating (by sticking to the spirit of the implicit agreement). In this scenario, Coca-Cola may win market share and earn incremental profits by selling more Coke drinks.
Payoff Matrix
Let’s assume that the incremental profits that accrue to Coca-Cola and Pepsi are as follows:
If both keep prices high, profits for each company increase by $500 million (because of normal growth in demand).
If one drops prices (i.e. defects) but the other does not (cooperates), profits increase by $750 million for the former because of greater market share, and are unchanged for the latter.
If both companies reduce prices, the increase in soft drink consumption offsets the lower price, and profits for each company increase by $250 million.
The payoff matrix looks like this (the numbers represent incremental dollar profits in hundreds of millions):
Coca-Cola vs. PepsiCo –
Payoff Matrix PepsiCo
Cooperate Defect
Coca-Cola Cooperate 500, 500 0, 750
Defect 750, 0 250, 250
Other oft-cited prisoner’s dilemma examples are in areas such as new product/technology development, or advertising and marketing expenditures by companies. For example, if two firms have an implicit agreement to leave advertising budgets unchanged in a given year, their net income may stay at relatively high levels. But if one defects and raises its advertising budget, it may earn greater profits at the expense of the other company, as higher sales offset the increased advertising expenses. However, if both companies boost their advertising budgets, the increased advertising efforts may offset each other and prove ineffective, resulting in lower profits (due to the higher ad expenses) than would have been the case if the ad budgets were left unchanged.
Applications to the Economy
The U.S. debt deadlock between the Democrats and Republicans that springs up from time to time is a classic example of prisoner’s dilemma. Let’s say the utility or benefit of resolving the U.S. debt issue would be electoral gains for the parties in the next election. Cooperation in this instance refers to the willingness of both parties to work to maintain the status quo with regard to the spiraling U.S. budget deficit. Defecting implies backing away from this implicit agreement and taking the steps required to bring the deficit under control. If both parties cooperate and keep the economy running smoothly, some electoral gains are assured. But if Party A tries to resolve the debt issue in a proactive manner, while Party B does not cooperate, this recalcitrance may cost B votes in the next election, which may go to A. However, if both parties back away from cooperation and play hardball in an attempt to resolve the debt issue, the consequent economic turmoil (sliding markets, a possible credit downgrade, government shutdown, etc.) may result in lower electoral gains for both parties.
How Can You Use It?
The prisoner’s dilemma can be used to aid decision-making in a number of areas in one’s personal life, such as buying a car, salary negotiations and so on.
For example, assume you are in the market for a new car, and you walk into a car dealership. The utility or payoff in this case is a non-numerical attribute, i.e. satisfaction with the deal. You obviously want to get the best possible deal in terms of price, car features, etc. while the car salesman wants to get the highest possible price to maximize his commission. Cooperation in this context means no haggling; you walk in, pay the sticker price (much to the salesman’s delight) and leave with a new car. On the other hand, defecting means bargaining; you want a lower price, while the salesman wants a higher price. Assigning numerical values to the levels of satisfaction, where 10 means fully satisfied with the deal and 0 implies no satisfaction, the payoff matrix is as shown below:
Car Buyer vs. Salesman –
Payoff Matrix Salesman
Cooperate Defect
Buyer Cooperate (a) 7, 7 (c) 0,10
Defect (b) 10, 0 (d) 3, 3
What does this matrix tell us? If you drive a hard bargain and get a substantial reduction in the car price, you are likely to be fully satisfied with the deal, but the salesman is likely to be unsatisfied because of the loss of commission (as can be seen in cell b). Conversely, if the salesman sticks to his guns and does not budge on price, you are likely to be unsatisfied with the deal while the salesman would be fully satisfied (cell c). Your satisfaction level may be less if you simply walked in and paid full sticker price (cell a). The salesman in this situation is also likely to be less than fully satisfied, since your willingness to pay full price may leave him wondering if he could have “steered” you to a more expensive model, or added some more bells and whistles to gain more commission. Cell (d) shows a much lower degree of satisfaction for both buyer and seller, since prolonged haggling may have eventually led to a reluctant compromise on the price paid for the car.
Likewise, with salary negotiations, you may be ill-advised to take the first offer that a potential employer makes to you (assuming you know that you’re worth more). Cooperating by taking the first offer may seem like an easy solution in a difficult job market, but it may result in you leaving some money on the table. Defecting (i.e. negotiating) for a higher salary may indeed fetch you a fatter pay package; conversely, if the employer is not willing to pay more, you may be dissatisfied with the final offer. Hopefully, the salary negotiations do not turn acrimonious, since that may result in a lower level of satisfaction for you and the employer. The buyer-salesman payoff matrix shown earlier can be easily extended to show the satisfaction level for the job seeker versus employer.

BEST BUY

Consumers may be the only cheerful ones this holiday season; for retailers, it’s going to be a skinny Christmas. That was the message from Best Buy (BBY) this morning as it warned about an “increasingly promotional environment.”
The retailer said it would keep pace, sticking to a price-matching policy it made permanent in February and similarly matching the early opening decisions of its rivals by welcoming shoppers at 6 p.m. on Thanksgiving. Best Buy Chief Financial Officer Sharon McCollam said the company is “highly aware” of just how much its competitors will be slashing prices in the holiday blitz from Thanksgiving to Dec. 25. “It is table stakes in our transformation,” she said of the decision to follow their lead.
Best Buy may have its hands tied, but a lot of retailers have the same complaint. None of them wants to have huge sales, but they don’t want to miss out on the crowds. Slicing off a big chunk of profits is just what it takes to get into the holiday shopping game these days.
This provides a decent example of what game theorists call a prisoner’s dilemma. If all the major retailers chose not to offer sales, each player in the sector would fare better. But if any one of them is going to cut prices eventually—like a prisoner squealing on cellmates—it pays to beat the rat to the punch.
This year, Macy’s (M) grabbed the first-mover advantage in mid-October, when it announced aggressive sales and an early Thanksgiving Day opening time. Best Buy, cast in the role of Prisoner No. 2 in the dilemma, got shanked and thrown in solitary.
Cutthroat competition aside, Best Buy has been surviving fairly well. It has been a stock-market darling since it hired Chief Executive Officer Hubert Joly a year ago and set to turning around its business. The company has cut costs, reorganized showrooms, and spiffed up its Web platform to drive a 15 percent increase in online sales.
In the recent quarter, Best Buy posted $54 million in profit, swinging from a $10 million loss in the year-earlier period. Sales at stores open more than a year were virtually flat, which was a sort of victory—if a hollow one. “Our mission is to be the destination and authority for technology products and services,” Joly said.
But the company has little margin left to give up. While it’s no longer losing heaps of money, Best Buy barely broke even in the year’s first nine months. In short, the prison gruel is getting thin.

Kết quả (Việt) 1:

Các ứng dụng cho doanh nghiệpMột ví dụ cổ điển của tiến thoái lưỡng nan của tù nhân trong thế giới thực là gặp phải khi hai đối thủ cạnh tranh đang chiến đấu nó ra trên thị trường. Nhiều lĩnh vực của nền kinh tế có hai đối thủ chính. Ở Mỹ, ví dụ, sự cạnh tranh khốc liệt giữa Coca-Cola (NYSE:KO) và PepsiCo (NYSE:PEP) trong nước giải khát, và Home Depot (NYSE:HD) so với Lowe's (NYSE:LOW) trong việc xây dựng vật tư, đã được tăng lên rất nhiều trường hợp nghiên cứu tại trường kinh doanh. Rivalries khốc liệt khác bao gồm Starbucks (Nasdaq: SBUX) so với Tim Horton's (NYSE:THI) ở Canada, và Apple (Nasdaq: AAPL) so với Samsung (SSNLF) trong lĩnh vực điện thoại di động toàn cầu.Xem xét trường hợp của Coca-Cola so với PepsiCo, và giả định rằng các cựu là suy nghĩ của cắt giảm giá của thức uống Coke mang tính biểu tượng của nó. Nếu nó như vậy, Pepsi có thể có không có sự lựa chọn nhưng để làm theo phù hợp cho các Pepsi Cola để giữ lại thị phần của nó. Điều này có thể dẫn đến một giảm đáng kể trong lợi nhuận cho cả hai công ty. Một giảm giá của một trong hai công ty do đó có thể được hiểu như là việc, kể từ khi nó phá vỡ một thỏa thuận tiềm ẩn để giữ giá cao và tối đa hóa lợi nhuận. Vì vậy, nếu Coca-Cola giảm giá của nó nhưng Pepsi tiếp tục giữ giá cao, trước đây ông trong khi sau này hợp tác (bởi gắn bó với tinh thần của Hiệp định tiềm ẩn). Trong trường hợp này, Coca-Cola có thể giành chiến thắng chia sẻ thị trường và kiếm được gia tăng lợi nhuận bằng cách bán thêm Coke đồ uống.Ma trận kết quảLet’s assume that the incremental profits that accrue to Coca-Cola and Pepsi are as follows:If both keep prices high, profits for each company increase by $500 million (because of normal growth in demand).If one drops prices (i.e. defects) but the other does not (cooperates), profits increase by $750 million for the former because of greater market share, and are unchanged for the latter.If both companies reduce prices, the increase in soft drink consumption offsets the lower price, and profits for each company increase by $250 million.The payoff matrix looks like this (the numbers represent incremental dollar profits in hundreds of millions):Coca-Cola vs. PepsiCo –Payoff Matrix PepsiCo Cooperate DefectCoca-Cola Cooperate 500, 500 0, 750 Defect 750, 0 250, 250Other oft-cited prisoner’s dilemma examples are in areas such as new product/technology development, or advertising and marketing expenditures by companies. For example, if two firms have an implicit agreement to leave advertising budgets unchanged in a given year, their net income may stay at relatively high levels. But if one defects and raises its advertising budget, it may earn greater profits at the expense of the other company, as higher sales offset the increased advertising expenses. However, if both companies boost their advertising budgets, the increased advertising efforts may offset each other and prove ineffective, resulting in lower profits (due to the higher ad expenses) than would have been the case if the ad budgets were left unchanged.Applications to the Economy
The U.S. debt deadlock between the Democrats and Republicans that springs up from time to time is a classic example of prisoner’s dilemma. Let’s say the utility or benefit of resolving the U.S. debt issue would be electoral gains for the parties in the next election. Cooperation in this instance refers to the willingness of both parties to work to maintain the status quo with regard to the spiraling U.S. budget deficit. Defecting implies backing away from this implicit agreement and taking the steps required to bring the deficit under control. If both parties cooperate and keep the economy running smoothly, some electoral gains are assured. But if Party A tries to resolve the debt issue in a proactive manner, while Party B does not cooperate, this recalcitrance may cost B votes in the next election, which may go to A. However, if both parties back away from cooperation and play hardball in an attempt to resolve the debt issue, the consequent economic turmoil (sliding markets, a possible credit downgrade, government shutdown, etc.) may result in lower electoral gains for both parties.
How Can You Use It?
The prisoner’s dilemma can be used to aid decision-making in a number of areas in one’s personal life, such as buying a car, salary negotiations and so on.
For example, assume you are in the market for a new car, and you walk into a car dealership. The utility or payoff in this case is a non-numerical attribute, i.e. satisfaction with the deal. You obviously want to get the best possible deal in terms of price, car features, etc. while the car salesman wants to get the highest possible price to maximize his commission. Cooperation in this context means no haggling; you walk in, pay the sticker price (much to the salesman’s delight) and leave with a new car. On the other hand, defecting means bargaining; you want a lower price, while the salesman wants a higher price. Assigning numerical values to the levels of satisfaction, where 10 means fully satisfied with the deal and 0 implies no satisfaction, the payoff matrix is as shown below:
Car Buyer vs. Salesman –
Payoff Matrix Salesman
Cooperate Defect
Buyer Cooperate (a) 7, 7 (c) 0,10
Defect (b) 10, 0 (d) 3, 3
What does this matrix tell us? If you drive a hard bargain and get a substantial reduction in the car price, you are likely to be fully satisfied with the deal, but the salesman is likely to be unsatisfied because of the loss of commission (as can be seen in cell b). Conversely, if the salesman sticks to his guns and does not budge on price, you are likely to be unsatisfied with the deal while the salesman would be fully satisfied (cell c). Your satisfaction level may be less if you simply walked in and paid full sticker price (cell a). The salesman in this situation is also likely to be less than fully satisfied, since your willingness to pay full price may leave him wondering if he could have “steered” you to a more expensive model, or added some more bells and whistles to gain more commission. Cell (d) shows a much lower degree of satisfaction for both buyer and seller, since prolonged haggling may have eventually led to a reluctant compromise on the price paid for the car.
Likewise, with salary negotiations, you may be ill-advised to take the first offer that a potential employer makes to you (assuming you know that you’re worth more). Cooperating by taking the first offer may seem like an easy solution in a difficult job market, but it may result in you leaving some money on the table. Defecting (i.e. negotiating) for a higher salary may indeed fetch you a fatter pay package; conversely, if the employer is not willing to pay more, you may be dissatisfied with the final offer. Hopefully, the salary negotiations do not turn acrimonious, since that may result in a lower level of satisfaction for you and the employer. The buyer-salesman payoff matrix shown earlier can be easily extended to show the satisfaction level for the job seeker versus employer.

BEST BUY

Consumers may be the only cheerful ones this holiday season; for retailers, it’s going to be a skinny Christmas. That was the message from Best Buy (BBY) this morning as it warned about an “increasingly promotional environment.”
The retailer said it would keep pace, sticking to a price-matching policy it made permanent in February and similarly matching the early opening decisions of its rivals by welcoming shoppers at 6 p.m. on Thanksgiving. Best Buy Chief Financial Officer Sharon McCollam said the company is “highly aware” of just how much its competitors will be slashing prices in the holiday blitz from Thanksgiving to Dec. 25. “It is table stakes in our transformation,” she said of the decision to follow their lead.
Best Buy may have its hands tied, but a lot of retailers have the same complaint. None of them wants to have huge sales, but they don’t want to miss out on the crowds. Slicing off a big chunk of profits is just what it takes to get into the holiday shopping game these days.
This provides a decent example of what game theorists call a prisoner’s dilemma. If all the major retailers chose not to offer sales, each player in the sector would fare better. But if any one of them is going to cut prices eventually—like a prisoner squealing on cellmates—it pays to beat the rat to the punch.
This year, Macy’s (M) grabbed the first-mover advantage in mid-October, when it announced aggressive sales and an early Thanksgiving Day opening time. Best Buy, cast in the role of Prisoner No. 2 in the dilemma, got shanked and thrown in solitary.
Cutthroat competition aside, Best Buy has been surviving fairly well. It has been a stock-market darling since it hired Chief Executive Officer Hubert Joly a year ago and set to turning around its business. The company has cut costs, reorganized showrooms, and spiffed up its Web platform to drive a 15 percent increase in online sales.
In the recent quarter, Best Buy posted $54 million in profit, swinging from a $10 million loss in the year-earlier period. Sales at stores open more than a year were virtually flat, which was a sort of victory—if a hollow one. “Our mission is to be the destination and authority for technology products and services,” Joly said.
But the company has little margin left to give up. While it’s no longer losing heaps of money, Best Buy barely broke even in the year’s first nine months. In short, the prison gruel is getting thin.