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How exactly does their logic not add up? This is actually a specific example of a prisoners dilemma taught in some intro to game theory classes, with the classi

How exactly does their logic not add up? This is actually a specific example of a prisoners dilemma taught in some intro to game theory classes, with the classic example being the tobacco companies

fighterpilot 5y ago
Well it assumes a zero-sum game from the perspective of the competitors. The combined advertising effort of all competitors could grow the entire pie that they each share. Even though their percentage of the pie stays the same, the magnitude of the slice could be bigger, and that improvement in magnitude could outstrip the advertising cost, thus making it worthwhile.
- vikramkr 5y ago
  In heavily saturated markets (notably cigarettes as the main well known case study), advertising can be more zero sum than not. No model is perfect, but the prisoners dilemma model for advertising is at least useful in a couple well known cases.
  - fighterpilot 5y ago
    The assumption being made here is that the market will remain saturated even if all advertising is pulled.
yosito 5y ago
> If every competitor in a certain space puts in $100 in advertising, they can all expect $0 in returns. However if a single company put in nothing they would be in a worse place because their competitors' returns would automatically become higher. Assume competitors A, B and C and all put $100 each into advertising. That's $300 spent on advertising. Each competitor only has to earn $101 in sales to get > $0 returns. There is no theoretical limit on how much each competitor can earn in sales. Let's randomly say each company makes $500 in sales. That's a return of $400 per company. If a single company puts in nothing, they may likely earn less in sales, so let's say company A spends nothing on advertising but still earns $450 in sales, meanwhile B and C spend $150 on advertising and make $475 in sales. Company A gets a return of $450, and companies B and C get a return of $325 each. Anyway, all this math is irrelevant. OP said each company should expect $0 in returns. Where does that $0 come from? There is no rule that says they will earn $0 in returns. > This is actually a specific example of a prisoners dilemma taught in some intro to game theory classes You are correct that prisoner's dilemma is taught in intro to game theory, but you are not correct that this is an example of it.

How exactly does their logic not add up? This is actually a specific example of a prisoners dilemma taught in some intro to game theory classes, with the classic example being the tobacco companies

fighterpilot 5y ago

Well it assumes a zero-sum game from the perspective of the competitors. The combined advertising effort of all competitors could grow the entire pie that they each share. Even though their percentage of the pie stays the same, the magnitude of the slice could be bigger, and that improvement in magnitude could outstrip the advertising cost, thus making it worthwhile.

vikramkr 5y ago
In heavily saturated markets (notably cigarettes as the main well known case study), advertising can be more zero sum than not. No model is perfect, but the prisoners dilemma model for advertising is at least useful in a couple well known cases.
- fighterpilot 5y ago
  The assumption being made here is that the market will remain saturated even if all advertising is pulled.

yosito 5y ago

> If every competitor in a certain space puts in $100 in advertising, they can all expect $0 in returns. However if a single company put in nothing they would be in a worse place because their competitors' returns would automatically become higher. Assume competitors A, B and C and all put $100 each into advertising. That's $300 spent on advertising. Each competitor only has to earn $101 in sales to get > $0 returns. There is no theoretical limit on how much each competitor can earn in sales. Let's randomly say each company makes $500 in sales. That's a return of $400 per company. If a single company puts in nothing, they may likely earn less in sales, so let's say company A spends nothing on advertising but still earns $450 in sales, meanwhile B and C spend $150 on advertising and make $475 in sales. Company A gets a return of $450, and companies B and C get a return of $325 each. Anyway, all this math is irrelevant. OP said each company should expect $0 in returns. Where does that $0 come from? There is no rule that says they will earn $0 in returns. > This is actually a specific example of a prisoners dilemma taught in some intro to game theory classes You are correct that prisoner's dilemma is taught in intro to game theory, but you are not correct that this is an example of it.