The Prisoner’s Dilemma: The Oil Pricing Exercise

The Prisoner’s Dilemma: The Oil Pricing Exercise

The oil pricing faces the same impasse as that of the prisoner’s dilemma, where each organization needs to earn profit. In fact, long-term maximization might require unenforced mutual trust, where substantial short-term benefits are realizable only by breaking trust. As a result, the participating groups should have to talk with each other explicitly. None of the groups ought to be selfish and have any future motive that might collapse cooperation. This fact necessitates individuals to deeply scrutinize the effectiveness of any assumptions. Such negotiation is prone to bring disagreements into the business. In the case of no negotiation the groups might opt to be ruthless. Therefore, this perfect type of competition promotes self-interest. The outcome may be unhealthy both for the players and customers, as the payoffs are not the best possible results. For the sake of long-term benefits, the groups should agree on a cooperative strategy. This paper analyses the prisoner’s dilemma in the negotiation related to the oil pricing exercise and the feeling that accompanies the activity. Considering that everyone can become a victim of this case, the strategies to overcome it in the future will be developed.

In the negotiation case, if there is cooperation between all the groups, then they will enjoy shared benefits, which is a Nash equilibrium. These benefits are most probable in the long-term, since no group has to be kicked out of the business. Therefore, there are no chances of any of the groups going the cruel way to win their share. Leaving one group out of the market will evoke it to come up with an indecorum mode of business to capture the market share. This group might blindly opt to go for the competitive strategy. This strategy is not based on mutual benefits, as one or few groups might forced into bankruptcy. For instance, only A and B will get a payoff of 118, A and C together get 84, while B and C will get 50, while all of them in case of cooperating will get a total of 121. In the competitive strategy, one of the groups will be forced to leave, while A and B will achieve better payoffs. The problem is that group C will be out of business. This case will bring the threat as the failing group will be trying other mechanism to secure a place in the market. This problem also raises the chances of uncooperative tit-for-tat and grim strategies in the future.

Since I was a victim in the negotiation, I felt that the same strategy would not be fair enough, since the groups could reap cheaper benefits while using the cooperative strategy. For instance, group A and C get 50, which is comparatively lower than in the case of cooperation. As a result, the self-fulfilling mechanism is neither fair nor effective. Therefore, some of the combinations produce unfair results for some teams. In some instances, cooperative strategy might not be the best option. For example, in the provided case study theory, any combination of groups will need to move further and agree on how to split the benefits. For this reason, there might be other cases of conflict of how to share the gains. Since the each group wants to enjoy the benefits, they might find themselves struggling to break their collaboration.

At some point during the activity, the player feels that cooperative strategy could be the best solution, since each group is certain of the results of their decision. After the agreement, there might be no cases of one group trying to outdo the other. Cooperative strategy might not be the best for the strongest companies. The strongest and most rational investors will never participate in a truly fair competition. Each and every company has to set particular goals. Cooperative strategy is more or less an unnecessary equalization.

During the exercise, the player was immersed into the prisoner’s dilemma, since it reached a point when the parties could not cooperate despite the fact cooperation could be the only solution. Considering the case study provided, the results of the cooperative strategy come into two forms. The first set indicates that C gets the least, which is the same in the second case, where C gets the least 39. This form of strategy will not favor C at any cost. Group C will see itself betrayed by the mechanism. As a result, the group might opt to go the competitive way, which finally might produce a better payoff as a result of negotiation in splitting the benefits. In most cases, the group might receive higher profits by using the cooperative strategy, but it might betray other players.

As a result, such situations of prisoner’s dilemma will occur in the future, hence the need to develop effective strategies will enhance workable solutions. Moreover, it is unclear whether the groups might have such cases in the future. Anyway, the competitive strategy may never work. The group is likely to negotiate for an unlimited period of time. To prevent this repetitive dilemma, it will be wise to accept the cooperative strategy, and not the competitive one. All groups should be in business independently to eliminate the disastrous effects of disagreement on profit splitting, which is more fatal than winning the chance to join the market.

In conclusion, one can deduce that if group A and group B work jointly and disagree on the best way to split the profits, the two groups might never trust each other again. If group C is kicked out, the group might consider itself as betrayed and hence it might never cooperate again. The betrayed group will never be willing to cooperate with any other group in this game. Uncertainty of the possible future strategies might cause the same dilemma. Either of the companies will find itself betrayed. It might seem that cooperative strategy is not best for these player, but it is the long-lasting option. It might provide lower payoffs, but neither of the groups will feel betrayed. If I found myself in this dilemma, a workable solution would is to use the cooperative strategy in order reach an agreeable point.

The article was written by the executive writer from - Samanta Woods.

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