The Ethical Spectacle September 1995

The Prisoner's Dilemma in Business

Business life is rife with prisoner's dilemmas including the employer-employee relationship and that between vendor and customer.

If I offer a job and you take it, we are both offering an immediate sacrifice. I am trusting you with the key to the door, with money, with confidential information, with clients. I am giving up the opportunity to hire someone else. You are giving up the opportunity to work somewhere else and are trusting me to pay you, give you a growth path and the training you desire. You are also trusting me not to fire you and leave you in a position where you will have a hard time getting another job.

As a new employee, you may not be productive for me for a period of anywhere from a month to two years while you learn your trade. (The entry level salespeople my company hires out of college take almost two years before they begin repaying our investment in them, as they have a lot to learn about technology, the industry and sales techniques first.) If you leave after I train you but before you begin producing for me, you have a set of tools with which to go out and make money elsewhere and I have received the sucker's payoff.

If we learn to play in the cooperation zone, you may wind up feeling as if the company is your family, and I may feel you are a vital part of it because of your diligence, trust and good faith. And we may both thrive together.

Similarly, a company engages in a prisoner's dilemma with its vendors and its clients. (One scenario is analyzed in The Prisoner's Dilemma in Software Development.) In recent years, we have seen one large client repeatedly prune its vendor's list, throwing out smaller vendors and even forcing their employees, who the client wished to retain, to work for a larger vendor still in the account. This defection is possible because, given the relative size and power of the parties, the future had no shadow for the client; the defection of smaller vendors could not harm it, their cooperation had no meaning for it, and the future had no shadow.

Constant rounds of the game also take place between executives in different parts of a company. Here is a parable based on a real example I have witnessed. Suppose my company sells calculators. We wish to expand into personal digital assistants (PDA's) and create a division to manufacture and sell these. Our salespeople are thrilled; the existence of the new division extends their range; instead of being thrown out of the account by clients who need something more, they now have something additional to offer. They are playing the cooperation card, referring business to the PDA division yet trusting that it will not attempt to supplant them in their own accounts. Imagine now that the executive brought in to run the new division does not understand that he has entered a web of cooperation. His salespeople never return the favor; they will go all out to convince a client which really only needs a calculator that it needs a PDA, and, because several clients have demurred, they are now asking their boss to manufacture their own line of calculators. Besides which, PDA's are hard to make and to sell...Because they have played the defection card, all synergy has now been lost, and though so much was to be gained in cooperation, the original calculator business has now cloned an evil twin intent on competition. Such things happen every day.