What is a prisoner's dilemma?

The Prisoner's Dilemma is a mathematical game from game theory. It models the situation of two prisoners who are accused of having committed a crime together. The two prisoners are interrogated individually and cannot communicate with each other. If both deny the crime, both receive a light sentence, as they can only be proven to have committed a less severe offense. If both confess, they both receive a heavy sentence, but not the maximum penalty because of their confession. However, if only one of the two prisoners confesses, he or she goes unpunished as a key witness, while the other receives the maximum sentence as a convicted but unconfessed offender.

The dilemma now is that each prisoner has to decide whether to deny (i.e. cooperate with the other prisoner) or confess (i.e. betray the other prisoner) without knowing the decision of the other prisoner. However, the sentence that is ultimately imposed depends on how the two prisoners together have testified and therefore depends not only on their own decision, but also on the decision of the other prisoner.Prisoner's dilemma in marketingIn marketing, for example, pricing can lead to a prisoner's dilemma. Let's assume that two companies produce a comparable product and have a dominant market position. Both are faced with the decision of whether or not to lower the price of the product. If company 1 lowers the price and company 2 does not, company 1 benefits. The same applies to company 2 if it lowers the price and company 1 does not. However, if both lower the price, nobody benefits - on the contrary. Both companies are worse off than if they had not lowered their prices.Source: Wikipedia