Reference no: EM133343611

Case: There are many examples where companies competing with one another have gotten into the prisoners' dilemma. For example, banks likely would be better off (more profitable) if all greatly reduced the number of their ATMs. Airlines likely would be better off if all eliminated their loyalty programs. Grocery stores and retail companies would be better off if they avoided price wars. So why have such companies got themselves into these positions?

• One company believes it has a competitive advantage (technology, loyalty, costs, etc.) and tries to shift basis of competition - competitors imitate in order not to let original company gain an advantage or follow the herd mentality (believe original company may have information not yet available to competitors)
• One company believes there may be a first mover advantage - gain market share (economies of scale, learning curves, pre-emption, tipping point and networks), create brand loyalty - and competitors imitate in order not to let original company gain an advantage
• Reaction to decrease in demand and excess capacity - when demand increases, companies are caught in prisoners' dilemma
• One company attempts to gain a foothold in a new market - but competitors in new market as well as existing competitors in original market imitate (the latter may also enter new market)
• Collusion not possible, so competitors cannot enter into agreement to reduce ATMs, eliminate loyalty programs, stop a price war, etc. - no one company will move on its own for fear that competitors will not follow lead (prisoners' dilemma)