Prisoner
Why two perfectly rational people will betray each other every time — and how businesses use this insight to design pricing, contracts, and competition.
Two airlines sit across the table. American knows that slashing fares triggers United to follow. If they both hold prices, both earn healthy margins. If they both cut, both suffer. But if American cuts alone, it steals customers. The incentive to betray is overwhelming. Both airlines cut. Watch the same dynamic at the gas station. One station lowers prices. The competitor cuts too. Then the first cuts again. Nobody wins. Drivers pay less, but owners earned higher margins before. Individual incentive drove both toward a worse outcome. Cooperation would create more value.
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