Prisoner's Dilemma
The License Fee
The License Fee is a Prisoner's Dilemma scenario. The core lesson: When every firm's rational move is to litigate rather than cooperate, the whole industry can end up worse off than if everyone had shared. You hold a foundational patent on the control mechanism that lets an early flying machine bank and turn safely. A rival inventor built a different mechanism that does roughly the same job, and now dozens of manufacturers are using methods that look suspiciously close to your patented design. DecisionPlay maps the players, payoffs, and equilibrium dynamics that shape how this situation typically resolves.
The situation
You hold a foundational patent on the control mechanism that lets an early flying machine bank and turn safely. A rival inventor built a different mechanism that does roughly the same job, and now dozens of manufacturers are using methods that look suspiciously close to your patented design. Your lawyers want to sue everyone who might be infringing. Your chief engineer thinks litigation is a distraction from building better aircraft, especially with a major war looming and government officials starting to ask pointed questions about why the domestic aviation industry lags so far behind its European counterparts.
Background
You built your company on the strength of a single powerful patent, and every competitor who ignores it chips away at the value of what you own. But the rival mechanism does the same job through a different design, and years of lawsuits have already slowed the whole industry down while military planners overseas race ahead.
What this reveals
Mutual defection can beat mutual cooperation, individually, every time
Each firm's rational move, litigate to protect what you own, is fully justified in isolation, but when every firm makes that same rational move, the whole industry ends up worse off than if everyone had simply shared. Nobody can safely be the first to cooperate, because unilateral cooperation risks being exploited by a rival who keeps litigating anyway.
How to counter it: When you find yourself in a standoff where the individually smart move keeps producing a collectively bad outcome, look for a structure, an agreement, a rule, an outside authority, that changes everyone's payoff at once rather than trying to be the one brave enough to cooperate first.
A question to sit with
Have you ever been in a competitive standoff where everyone's rational move made the group worse off? What finally broke the pattern?
Frequently asked questions
- What game theory concept does The License Fee illustrate?
- The License Fee illustrates Prisoner's Dilemma. When every firm's rational move is to litigate rather than cooperate, the whole industry can end up worse off than if everyone had shared.
- What is the situation in The License Fee?
- You hold a foundational patent on the control mechanism that lets an early flying machine bank and turn safely. A rival inventor built a different mechanism that does roughly the same job, and now dozens of manufacturers are using methods that look suspiciously close to your patented design. Your lawyers want to sue everyone who might be infringing.
- What does The License Fee reveal about how people decide?
- Mutual defection can beat mutual cooperation, individually, every time. Each firm's rational move, litigate to protect what you own, is fully justified in isolation, but when every firm makes that same rational move, the whole industry ends up worse off than if everyone had simply shared. Nobody can safely be the first to cooperate, because unilateral cooperation risks being exploited by a rival who keeps litigating anyway.
- How do you avoid the trap in The License Fee?
- When you find yourself in a standoff where the individually smart move keeps producing a collectively bad outcome, look for a structure, an agreement, a rule, an outside authority, that changes everyone's payoff at once rather than trying to be the one brave enough to cooperate first.
- What is the research behind The License Fee?
- You built your company on the strength of a single powerful patent, and every competitor who ignores it chips away at the value of what you own. But the rival mechanism does the same job through a different design, and years of lawsuits have already slowed the whole industry down while military planners overseas race ahead.
- How long does The License Fee take to play?
- About 6 min, at core difficulty, across 3 decision points. It runs in your browser with no account and no sign-in.
Keep exploring
More Historical Perspective scenarios, or browse all scenarios. New to this? Start with how DecisionPlay works or the game theory glossary.
Topics: prisoners-dilemma, patents, cooperation, history