The ‘prisoner’s dilemma’ facing fashion retailers
Black Friday is a national holiday across the USA. Black Friday is known to kick off the christmas season of shopping by promoting stores having sales, but for one day only. It is a tradition in my family to wake up at 6am the day after thanksgiving and drive an hour away to one of the biggest malls in america for this event, but as the years go by the sales seems to be less drastic and the crowd diminishes each year because of the lacking sales. I’ve always wondered why this is happening? So many shoppers longingly wait for this holiday and spend their entire Christmas present budget in under 4 hours. Why would some stores choose not to participate in this sale?
In this article, the author discusses how sales in a store can be seen as a prisoner’s dilemma. As an example, imagine if store A is selling a trendy black crop top from the brand Brandy Melville for $24 dollars, but the store next to him, store B, is selling the same shirt and is having a discount for “25% off your entire in store purchase on black Friday only” in order to attract more customers and make more money! No one will go to store A to buy the shirt now because store B is selling it for $6 cheaper. In response, store A should give shoppers “25% off your entire in store purchase on black Friday only” in order to make some money off of the inventory they have on this Brandy Melville shirt. Though this response is better for the customer, it puts store A and B in a prisoners dilemma.
| No Discount (b) $18 | Discount (b) $24 | |
| No Discount (a) | 12,12 | 0,16 |
| Discount (a) | 16,0 | 8,8 |
Displayed above is the prisoner’s dilemma store A and B (A,B). The best option for store A is to discount their clothing if store B doesn’t discount their clothing, but If store B does discount their clothing, the optimal decision is still for A to discount their clothing as well.The best option for store B is to discount their clothing if store A doesn’t discount their clothing, but If store A does discount their clothing, the optimal decision is still for B to discount their clothing as well. So, the Nash equilibrium would be for both A and B to discount their clothing even though they would both make more money if they both decided not to discount the shirt at all.
Though the Nash equilibrium states that stores should discount their clothes and participate in this black Friday sale, it has become a problem because stores are losing too much money. Many stores believe that “their current discounting strategies are unsustainable” in the long run and have become reluctant to participate in the sale. In this case, it’s not only optimal that all stores choose to not discount, because their profit margins will be too small if they do, but may be necessary in order to keep stores in business. Despite the Nash equilibrium stating they all should have sales on black Friday, I believe stores must ban together in the coming years in order for them all to succeed or they will all go bankrupt due to this prisoners dilemma.
https://www.drapersonline.com/news/comment/comment-the-prisoners-dilemma-facing-fashion-retailers/7026806.article