Friday, April 18, 2014

Black Friday and the Prisoner's Dilemma

Bloomberg BusinessWeek explains that "Black Friday", the day after Thanksgiving to start the Christmas shopping spree, is an example of the Prisoner's Dilemma.  Here's how:  collectively retailer's are more profitable by not lowering prices if all retailers do not lower prices; but individually each retailer makes higher profits by their lowering prices if their competitors do not lower prices.  Since each is better off by lowering their prices, they all lower prices but earn lower profits than by all not lowering prices.

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