The Tobacco Industry
In 1971, tobacco companies were banned by the American Government from running cigarette advertisements on television. One would assume that tobacco companies suffered from this restriction as they received less exposure, but in fact, the tobacco industry saw higher profits than before. Why did this happen?
First, let’s backtrack to before the ban on advertisements. Tobacco companies that advertise will have a slight advantage over those that do not since advertisements shape brand perception and can influence customer preference for one brand over another. Tobacco smokers will smoke regardless of whether companies run advertisements, it is just a matter of which company they chose to buy from. It turns out that all tobacco companies would fare better without advertising, under the condition that all other tobacco companies do not advertise as well.13
Comparing directly with the prisoner’s dilemma framing, the three possible scenarios are as follows (assume there are only two tobacco companies in the industry): if one company advertises while the other does not, then the one who advertises will reap greater profits. If both companies advertise then both will nonetheless profit but to a lesser degree than if neither had advertised. The last and most optimal outcome would be if neither company advertises, leaving both with greater profit compared to the scenario in which both companies advertise. Here, we can see that the dominant strategy would be to advertise. However, with the ban from the government, the optimal cooperative outcome is forced and all tobacco companies end up profiting more.10
In the early days of the Cold War, there was a nuclear arms race between the United States and the Soviet Union. Through the fight for supremacy, both funneled trillions of dollars and resources into manufacturing nuclear weapons. This period in history can be iterated down to the common structure of the prisoner’s dilemma.14
Both the US and the Soviet Union can choose to either arm or disarm. As a result, there are three possible scenarios: If one arm while the other disarms, the one that arms will reap the greater benefits. If both chose to arm themselves, they both will face more unfavorable consequences compared to if both chose to disarm, which is the third and most optimal outcome for both parties involved, saving resources and keeping the threat of nuclear warfare at bay. However, since the assumption under the prisoner’s dilemma is that both parties are only acting for their personal benefit, the dominant strategy for both is to arm themselves.15