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Analyzing Payoff Tables 409

Although particular payoffs vary, the strategic implications of the three

payoff tables are the same. Assuming noncooperative play (i.e., no possibility

of communication or collusion), self-interest dictates the play of dominant

strategies. In the price war, a low price is most profitable, regardless of the com-

petitor’s price. Similarly, an arms buildup is the dominant strategy in the arms

race. (Fortunately, events in the former Soviet Union and the end of the cold

war have called a halt to the arms buildup.) Finally, in the generic prisoner’s

dilemma, defection is the dominant strategy. Note that the temptation payoff

from defecting is greater than the reward payoff from cooperation. In turn,

the penalty payoff if both players defect is greater than the sucker payoff if only

one player cooperates. In short, the logic of dominant strategies inevitably leads

to the inferior penalty payoffs under noncooperative play.

TABLE 10.3

Three Prisoner’s

Dilemmas

In each case, the play

of dominant strategies

leads to inferior

group outcomes.

(a) A Price War

Firm 2

High Price Low Price

High Price 10, 10 5, 12

Firm 1

Low Price 12, 5 7, 7

(b) An Arms Race

Superpower 2

Disarm Build Arms

Disarm 10, 10 50, 20

Superpower 1

Build Arms 20,  50 20,  20

(c) A Generic PD

Player 2

Cooperate Defect

Cooperate R, R S, T TTemptation

Player 1 RReward

Defect T, S P, P PPenalty

SSucker

TRPS

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