Rolling for Initiative is a weekly column by Scott Thorne, PhD, owner of Castle Perilous Games & Books in Carbondale, Illinois and instructor in marketing at Southeast Missouri State University. This week, Thorne discusses how the prisoner's dilemma applies to game stores.
Two criminals steal a car and rob a bank. They are caught driving the stolen car and arrested for car theft and on suspicion of robbing the bank. Both prisoners are kept separate, unable to communicate, and offered the following deal: agree to testify against your buddy. All charges get dropped against you and your partner gets three years and the charges against you get dropped.
Whichever one confesses first gets the deal. If both of you confess at the same time, the dropped charges offer goes out the window and you both get two years. If neither confesses, the prosecutor presses charges on the car theft and both get one year. Since this is an example, any hypothetical repercussions such as revenge after the sentence are ignored and each prisoner does not know what the other one decides until charges get filed.
Rational self interest indicates that I should agree to testify against my buddy as soon as possible. That way I get zero years in prison and he gets three years. If we both confess, “betraying” each other, we do a combined four years in prison. If we both shut up, “co-operating” we do a combined two years in prison. Cooperating gives us the optimum outcome, and competing produces the worst outcome. If I do what is best for me and you do what is best for us, I get the best possible outcome for me and you get the worst for you.
How does this apply in the game industry?
Well, pricing for one. Assuming no externalities, cooperating on pricing for one (note that reaching out and discussing a plan to hold prices at a certain level is horizontal price fixing and is illegal). Take the D&D Player’s Handbook as an example. If everyone gets a copy and everyone decides, independently, to sell it at MSRP, every store makes maximum profit on the game. Now one store says “Hey, I am willing to cut the price below MSRP in order to sell my copy before these other stores. Sure, I will make less profit, but I will sell my copy and bank the profit before they do.” Rational self interest here.
Now, the other stores look at the first store, see it selling copies, albiet for less profit but still selling copies. Ergo in order to compete, the other stores cut their price on Wingspan to what the original store has it set. So all stores are at the new lower price, equally likely to sell, again assuming no other externalities, but making less profit and leaving everyone somewhat worse off, until someone decides that they are not selling enough copies again and needs to cut the price further in order to increase those sales.
This scenario is great for the customer, who gets the D&D Player's Handbook at a cheaper price, but difficult for the stores who have to pay full price for the book but sell it for less profit. This is where MAPP and competitive advantage come into play, which I will look at next week, unless something big hits the news. Your comments are welcome at firstname.lastname@example.org
The opinions expressed in this column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of ICv2.com.