Week 1

Simultaneous Games IV
Prisoners’ Dilemma
 Toothpaste Wars

Colgate
Advertise Do not advertise
Sensodyne

Advertise £2.5mn / £2.5mn £5.5mn / £2.0mn

Do not
£2.0mn / £5.5mn £5.0mn / £5.0mn
advertise
 Prisoners’ Dilemma
 Sensodyne’s and Colgate’s profits would be
higher if both did not advertise
 But both have an individual incentive to
advertise anyway
 Regardless of what the other player does

 This situation is called a prisoners‘ dilemma

 Nature of the Prisoners‘ Dilemma
 It is not a problem of information,
both players know the game inside out
 The dilemma arises because both act selfishly
 The result does not maximize joint payoffs
Competitive Strategy
Tobias Kretschmer
Professor of Management, LMU Munich

© 2013 LMU Munich