Prisoner’s Dilemma in Real-Life Situations — Collusion Models and Price Stability

Runyu Zhao§, Minjun Xiao†, Leyan Liu‡
St. Mark’s School, Southborough, United States, 01772
†International Business School, Hunan University of Technology and Business, Changsha, China, 410205
‡Changjun Senior High School International Department, Changsha, China, 410000
§Corresponding author: Runyu Zhao, Email address: runyuzhao@stmarksschool.org

With the advance of the market economy, market equilibrium is confronted with a challenge. How to maximize revenue is the maximal conundrum for every enterprise. In this paper, the difficulties of finding a better payoff condition in the Prisoner’s Dilemma model, a classic game theory concept, are demonstrated by simulating the duopoly competition between Pepsi and Coke. The presence of collusion is explained in light of this situation’s advantages for businesses as well as its significant negative effects on society at large. Meanwhile, a method for price stabilization is put out to revise the guidelines for company pricing changes and prevent collusion in particular ways.
Citation:

Related Papers:
Abstract

With the advance of the market economy, market equilibrium is confronted with a challenge. How to maximize revenue is the maximal conundrum for every enterprise. In this paper, the difficulties of finding a better payoff condition in the Prisoner’s Dilemma model, a classic game theory concept, are demonstrated by simulating the duopoly competition between Pepsi and Coke. The presence of collusion is explained in light of this situation’s advantages for businesses as well as its significant negative effects on society at large. Meanwhile, a method for price stabilization is put out to revise the guidelines for company pricing changes and prevent collusion in particular ways.

References