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The Second-Best Thing I Have Read Today, Game Theory And Jersey Shore Edition…

August 24th, 2010 · 9 Comments
Game Theory · The Simpsons

I will get to the best thing eventually…in the meantime:

From Mind Your Decisions:

Handbag companies were not happy to see reality star Snooki on Jersey Shore vomit in their handbags and defile their brands.

And so, they fought back in an interesting way. Via NBCPhiladelphia:

Well, it ends up that fashion powerhouses like Gucci and Coach have been allegedly sending the “Jersey Shore” train wreck [Snooki] expensive designer bags.

The kicker: Coach is not sending [Snooki] Coach bags. They’re sending her Gucci bags, and any other competing designer product they can put into her Guido-grabbing hands.

Who knew the strategies of Game Theory would come so naturally to the fashionistas who think a $5,000-price tag for a handbag is a reasonable marketing move?

This is fantastic. Also, since I understand the power of incentives, I am now going to make it a habit to behave badly in public places so that I too can be on the receiving end of the spoils of corporate sabotage.

That said, I really don’t think that this is what Adam Smith had in mind when he wrote about how the profit motive and competition were good for the economy, and, in fact, this sort of behavior is not particularly good for the economy. Presh over at Mind Your Decisions seems to get this:

On closer analysis, the game is not good for the companies. The brand war is a type of Prisoner’s dilemma.

The best outcome is if no one sent Snooki a handbag. Yet each company is motivated to send a competitor’s handbag–regardless of what the other does–and so each sends a handbag as a dominant strategy. Ultimately both pay for handbags and both brands get shown negatively on TV.

In spite of the clever strategies, the losers of this “unbranding game” are the companies. The clear winner of the is Snooki. Ironic, isn’t it?

Dear Presh: You say ironic, I say inefficient. 🙂 This example highlights that, while our economics textbooks point out that competition among firms drives economic efficiency, it is important to distinguish good competition from bad competition. In general, competing by making your product better (without increasing cost) or cheaper (without sacrificing quality) is good competition. Competing by making your competitor’s product worse is bad competition. We can also, in a way, put advertising in the bad competition category if the advertising is of a persuasive rather than an informational nature. Under this framework, the following is an example of bad competition:

Mr. Plow and Healthy Competition?

It’s certainly not economically efficient for Barney to destroy useful capital by shooting Homer’s tires, and society would have been better served if Barney had instead concentrated his efforts on adding to his plowing value proposition. Maybe if he had followed that approach Homer wouldn’t have stranded him on Widow’s Peak as retaliation and customers’ driveways would have actually gotten plowed in a timely fashion.

The more I watch, the more I feel like Homer and I are kindred spirits in some ways. In the above clip, for example, he has no trouble jumping out of bed at 7am to pursue his entrepreneurial venture even though he often has trouble showing up to his job at the power plant on time. I can certainly commiserate on this point.

Tags: Game Theory · The Simpsons

9 responses so far ↓

  • 1 misterxroboto // Aug 24, 2010 at 6:37 pm

    this is classic. the problem is that it doesn’t fit very well with economic models (they’re a little too classy for jersey shore!)

    but seriously, how do we fix a problem like this? do we nudge people against jersey shore to prevent similar behavior? or does that seem like we’re just treating the symptoms?

    this is a tough predicament. i suppose the best thing we can do is advertise that firms do this and ask that people be virtuous–avoid buying the handbags of a firm that uses such underhanded techniques.

  • 2 michael webster // Aug 24, 2010 at 7:21 pm

    Not following the distinction between good and bad competition, at least from the economist’s point of view.

    Yes, competition can be destructive. But, it sounds more like you are trying to explain rent seeking behaviour.

    On the other hand, advertising is puffery and design to make choices and actions easier, and I am very unclear why you would lump this into “bad competition”.

  • 3 Stephen G // Aug 24, 2010 at 8:29 pm

    > Second-best thing
    Tease!

  • 4 Justin Ross // Aug 25, 2010 at 8:40 am

    Isn’t this the part where a zealous Keynesian jumps out and explains why Barney shooting Homer’s tires was good for the economy because it caused him to buy new tires.

  • 5 Joao Pedro Afonso // Aug 25, 2010 at 1:04 pm

    The power of competition to produce better products relies on the acknowledge of the differences between those existent. Better products sells more or with better margins, worst products sells less or with less profit. Everyone wants to have the first, so they will try supposedly to have better products. Of course, “better” runs in several directions/dimensions, warranting diversity of models and suppliers to fulfill the same demand.

    However, to all that happens, the consumers need to be knowledgeable to those differences. From my point of view, good competition is the one which relies on correct information to the consumer… and that, includes also information about the relative deficiencies of the concurrence. On the other side of my point of view, bad competition would rely on incorrect information to win the game: either lie about product qualities or slander unfairly (lying) the rival products. If a producer is able to pass a certain image of success and don’t see himself being called in the bluff, he doesn’t need to improve his products, and the power of competition to get better ones will wane.

    I’m saying all this because most of the advertisement, promotional actions, and things like that are aimed into creating a brand, an image, not in really informing the costumer. I’m naive enough to classify this as bad competition, and saying that, to express the conviction that good competition is the exception and not the rule. But this is to ignore or to snub the purpose behind, which is to play in another new direction of “betterness”, brand value. Now, I’m not going to pretend I like that direction, but it is clear some people value that and a lot. Good or bad classification of the competition will came then as natural consequence of accepting brand value as a valid “betterness” direction or not. Keep with me, I’ll not accept it… from this point of view, high price tags due to brand value, to product “coolness”, hides the other “better” dimensions of the product. They work as substitutes for other desirable and tangible qualities of the product (durability, assistance, etc…), but by doing, they are able to mask eventual reductions on those qualities. The name became more important than reality, and the competition becomes “bad”.

    All these to conclude, even not knowing that “piece” of “Jersey Shore” (or any reference of it), that by defiling/destroying brand value, Snooky is doing a service to good competition. If this is a conundrum, I think there is an easy solution to unlock the game’s theory stalemate: is enough to the smartest company to send Snooky, one of his own models… and not of the competition. The model would came with a special compartment for vomits and be called Gucci (or Coach) Snooky model (or “shore train wreck” model, whatever work in terms of trademarks). The point would be, the company is so concerned with their costumers that will not stop from producing special models for theirs more special costumers. Even if Snooky would keep trashing other models, then she would appear as ignorant, not using HER model… brand value would be preserved, even augmented.

  • 6 Michael L. // Aug 28, 2010 at 1:58 am

    Jeez why do people write such long novels on comments? Do people actually stop and read them?

    I guess I get what you mean by healthy competition but I really don’t understand how someone throwing up into a handbag is bad competition. In terms of the Simpsons thing, I think your confusing “bad competition” with illegal competition. Shooting out tires is illegal as is what Homer does to Barney.

    In short, I don’t see how the Simpsons thing relates at all to Gucci and Coach doing this. What they’re doing is completely legal. Perhaps, however, one could sue NBC or Snooki for giving their companies intentionally bad names.

  • 7 Joao Pedro Afonso // Aug 28, 2010 at 4:12 am

    Michael L, you might think “long novels on comments”, are show-off no one reads. Actually, at least in my case, is lack of faith at my knowledge, combined with a long tradition of teacher’s misunderstandings to whom I ask things and usually think I’m aiming to the obvious. I feel compelled by that to explain my reasons, even if I know few are going to read it… it’s the problem of living in the MTV or twitter age, many people wants short bursts of easily digestible information. But don’t complain later if they are easily influenced or in lack of reasoning or prone to bubble crisis.

    If I could, I would write less. Compare my answer to “On How Teenagers Are More Employable Than Unemployed Adults…Or Something Like That??” to Patrick, ten minutes later. Both the same but his is more compact and straightforward. There is a solution anyway: don’t read.

  • 8 misterxroboto // Aug 28, 2010 at 9:55 am

    tl;dr

  • 9 Joao Pedro Afonso // Aug 29, 2010 at 8:27 am

    ts;dr

    I’m joking, I see you followed my last advice, misterxroboto. But I didn’t knew the acronym you used, so thanks for the lesson. By the way, didn’t you found the answers to your questions in what I wrote? I think they are there. I’ll resume my proposal to your question “how do we fix a problem like this?” in one word:

    HUMOR!

    Don’t try to take seriously what is happening, you’ll end worse. We are talking about ridicule, the mighty weapon of the weak. That’s why I would have fashioned a special handbag and sent it, changing the rules of the game.

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