Question

Discuss the ways in which the Prisoners’ Dilemma game could be used to provide insights in the contexts of intellectual property rights and standard setting.

Answer 1

Prisoner’s Dilemma, is an applicative format of the game theory that shows the intensity of the competition between firms—especially where the firms are few in number as compared to other market forms and are large enough to command a dominant  segment in the market.

The example—prisoner’s dilemma talk of how two prisoners who have been convicted of a certain crime and jailed seek to escape through various possible strategies. Each has choice to either confess or refuse to confess. There is also the idea of having a plan that is totally independent of the plan of the other person—or prisoner—in the example. The equilibrium is reached in a way that each player’s plan gives him the maximum gain, given the other’s plan—a case where each player has no incentive to change his plan of strategy.

Intellectual property rights that are an individual or a firm’s exclusive rights to certain hitherto unknown ideas—a form of innovation—that have arisen exclusively because of the individual’s or firms ‘ intellectual capability and hence theses entities have the right not to reveal them out openly but use them for their own purpose( though in some cases there could be a time frame.) If such ideas are openly discussed it could lead to dismal results of the originally intended idea since it could be used in a way that can be manipulative to the other vested interests of the idea—in simple words, other third parties could interpret the idea in their own manipulative way such that the originality of the idea is lost. Hence the individual or firm will seek legal protection called intellectual property rights—theses include patents, copyrights and so on.

Lets ‘ assume that there are two firms in the industry—each has come up with a superb idea for innovation of a product that they both sell—each one’s product is a close substitute to the other – in such case if each is able to successfully implement its idea then it could lead to profits for each other ( an assumption), yet the risk lies in the fact that each firm might have to consider a situation where the other firms’ idea might be a better option than its own –in such a case it could lead to the other firm winning its strategy-

Another equally piquant situation is when each firm can , by the use of certain shadow means gain insight into the other firm’s game plan , in an attempt to either utilize it to its own benefit or modify its own strategy. The firm that is able to gain such an insight (though through shady means!!) is at a better advantage since it now has a perception of both ideas—this could prove disadvantageous to the other firm.

More so in a (humorous) situation where both have got insights of the other’s plan, the end result is that the ‘uniqueness’ of the strategy is lost in such a case.

Hence its important that each firm seeks to protect its idea through legal means .This would defer the other from copying or unlawfully using the idea for its own benefit. It could also lead to legal hassles for the other firm which in effect could lead to negative publicity which the firms would generally wish to avoid at any cost.

. However , in the better interest of the firm , each has to consider what could happen if the other firm somehow manages to utilize its own ‘secret’ of trade and ‘comes up’ with a strategy that is so unique that it becomes near to impossible to even claim that the other competitor has ‘utilized’ its strategy. In such cases each firm is at a disadvantageous position .Finally, without legal ‘protection’ to its strategies each firm might end up in a compromising and economically   embarrassing position such that each tends to lose out in the ultimate result—a scene which neither of the firms want to perceive.

In case of standard setting, a certain approved score which acts as a borderline is determined . This is done through scientifically and statistically determined means. The score is a a representation of a certain level of proficiency in a certain area –usually used in academics.

Such settings could lead to various plans being created in the field of competition –in case of firms—each firm or player could either gain or lose from its strategy or find a middle way of deciphering the protected strategy of its competitor and seek to attack the situation through its own way. It may also lead to a few firms exiting the competition due to lack of a proper strategy .It could also lead to cases where a stable or a standard plan emerges based on the past experiences of the firms.A certain standard pattern arises wherein each player is able to decipher the other’s game plan, though the risk involved in such a pattern is that human behavior is never fixed but always volatile—flexible—there could arise deviations from the standards that have been set earlier and the ability of each player to tackle such deviations to its own benefit is a crucial part of the game. This in fact sets the standard higher for the future players or strategists.