Prisoners Dilemma Resolver

Example 1: Pricing cartel between two mail-order retailers

Situation: Rainbow's End (RE) and B.B. Lean (BB) both price shirts at $70 when both could price at $80 and each earn $72,000 vs. $70,000 per year. Each firm cuts to $70 because it's the dominant strategy: cutting while the other holds at $80 yields $110,000; holding at $80 while the other cuts yields only $24,000.

Diagnosis: Classic 2-player prisoners' dilemma. T=$110k, R=$72k, P=$70k, S=$24k. Defection dominant for both.

Discount-rate calculation: (R−P)/(T−R) = ($72k−$70k)/($110k−$72k) = $2k/$38k = 5.26%. If prevailing interest rate < 5.26%, tacit cooperation at $80 is self-sustaining.

Mechanism: Level 1 (self-enforcing repeated play). Detection: price lists are publicly observable. Clarity: define "defect" as cutting below $80. Response: immediately match any price cut in next catalog. Forgiveness: if other party restores $80 pricing, match that too. Communication: a "most-favored-customer" clause makes the automatic response policy public, removing ambiguity. Anti-pattern avoided: no explicit agreement is reached (antitrust risk); cooperation is purely tacit.

Example 2: Fishery commons overexploitation

Situation: New England fishing fleet: each captain has incentive to catch as much as possible before others do; result is collapse of species after species (Atlantic halibut, ocean perch, haddock).

Diagnosis: Multiperson prisoners' dilemma (contribution game). Each additional catch by one captain reduces the stock for all others. Dominant strategy: fish aggressively regardless of what others do.

Discount-rate calculation: Not determinative on its own — relationship continues indefinitely but individual boats can't unilaterally enforce rules against strangers.

Mechanism: Level 5 (Ostrom commons governance). Apply 8-principle checklist: 1. Boundaries: issue licenses to fish specific species in specific zones — clear membership 2. Rules match conditions: seasonal closures and gear restrictions (net size) — more observable than quantity quotas 3. Graduated sanctions: first violation = warning + education; second = fine; third = license suspension 4. Automatic detection: rotating assignment to prime fishing zones creates natural monitoring — the assigned captain notices unauthorized use immediately 5. Local design: fishing community designs the quota and rotation rules with knowledge of local conditions, not federal agency 6. Conflict resolution: fishing association mediation before formal sanction 7. External recognition: state and federal agencies recognize community fishing governance authority 8. Nested governance: local associations handle local waters; interstate compact handles migratory species

Example 3: Coordination problem misdiagnosed as cooperation problem

Situation: Ivy League colleges keep overspending on athletics even though the relative standings stay the same. "Each school would be better off if we all limited spring training to one day."

Diagnosis check: "If other schools limit training, should I limit training?" → Yes, my performance improves no more than theirs, but I save costs. "If other schools don't limit training, should I limit training?" → No, I'd be at a disadvantage. This is NOT a prisoners' dilemma. Defection is NOT dominant regardless of others' choices. The best response to "others cooperate" is to cooperate; the best response to "others defect" is to defect. This is a coordination problem.

Mechanism: Not Level 1-5 from the resolution menu. Instead: establish a focal point for the cooperative equilibrium through a collective agreement with clear enforcement (the Ivy League agreement limiting spring training to one day). Once the convention is established and everyone expects everyone else to comply, compliance becomes self-sustaining without punishment — because no one wants to be the only school overdoing training when no one else is.

Key distinction that matters: if this were a genuine prisoners' dilemma, the agreement would keep collapsing despite everyone's stated preference for cooperation. In coordination problems, a credible agreement is usually sufficient because there is no dominant strategy to defect — just a fear that others won't cooperate.