Game Theory and Canals
This article discusses how game theory relates to the Suez and Panama Canals. These two canals are competing for customers, resulting in the Prisoner’s Dilemma, which can be seen through infrastructure improvements and pricing. Through the Prisoner’s Dilemma, each canal must try to achieve the best response to each other, not only to make money but also to maintain a customer following. To achieve this, the Panama canal gave its customers a discount. In addition, the Panama canal has created more routes to transport goods. In response to Panama canal’s strategy, the Suez canal also offered a 3% discount (and a 14% discount if the customer uses the canal for over a year), and expanded the canal to allow two-way traffic, so that its customers would not avoid its canal.
These deals result in carriers trying to differentiate which is a better deal, especially for the long term. With Suez offering a long term discount, customers must decide whether they should take the discount now, or save their money in the short term. While Suez has this tempting offer, the Panama Canal, must think of ways to counter this offer, especially if customers decide to invest in the Suez Canal in the long term, since this could lead to serious profit losses.
http://splash247.com/tale-two-canals-game-theory-action/.