INTRODUCTION

In anything we do especially in a business management, there are some required strategies needed for
successful achievement of a set goal. Therefore, in this assignment we are going to look into the concept
of Prisoner’s Dilemma Strategy in entertainment field and how can we apply it in business event
management.

THE PRISONER’S DILEMMA STRATEGY

The prisoner’s dilemma, one of the most famous game theories, was conceptualized by Merrill Flood
and Melvin Dresher at the Rand Corporation in 1950. It was later formalized and named by Princeton
mathematician, Albert William Tucker.

The prisoner’s dilemma basically provides a framework for understanding how to strike a balance
between cooperation and competition and is a useful tool for strategic decision-making.

As a result, it finds application in diverse areas ranging from business, finance, economics and political
science to philosophy, psychology, biology and sociology.

This concept explores the decision-making strategy taken by two companies who, by acting in their own
individual best interest, end up with worse outcomes than if they had cooperated with each other in the
first place.

Let’s assume that the incremental profits accrue to Coca-Cola and Pepsi are as follows:

 If both keep prices high, profits for each company increases by $500 million (because of normal
growth in demand).
 If one drops prices (i.e. defects) but the other does not (cooperates), profits increased 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.

APPLICATION TO BUSINESS

A classic example of the prisoner’s dilemma in the real world is encountered when two competitors are
battling it out in the marketplace. Often, many sectors of the economy have two main rivals for
example, there is a fierce rivalry between Coca-Cola and PepsiCo in soft drinks and Home Depo versus
Lowe’ in building suppliers.

Considering the case of Coca-Cola versus PepsiCo, and assume the former is thinking of cutting the piece
of its iconic soda. If it does so, Pepsi may have no choice but to follow suit for its cola to retain its market
share. This may result in 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 colas.
 Payoff PepsiCo

Matrix

Cooperate Defect

Cooperate 500,500 0,750

Coca-Cola Defect 750,0 250

250

REFERENCES

Melvin Dresher (1961). The Mathematics of Games of Strategy: Theory and Applications.

Anthony Sopuruchi Anih (2012). Thesis: Basic Strategy in Corporate Event Management: Guide for
Nigerian Event Firms.

Investopedia (Updated May 16, 2019). How Game Theory Strategy Improves Decision Making

Investopedia (Updated May 16, 2019). The Prisoner’s Dilemma in Business and The Economy.