EBayer’s dilemma

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for those spooked by the idea of being locked up in a police cell on trumped up charges, consider instead the eBayer’s dilemma. This version Douglas Hofstadter once described as the "briefcase came", but Millennials will recognise it as the eBayer’s dilemma.

Strangers consider a settling a transaction they have drunkenly agreed on eBay to purchase a set of complete boxed set of the final season of Some Mothers Do ’Ave ’Em on VHS, for £100.

The seller must pay for, and the buyer must post the videos, simultaneously. Assume the seller would have sold the videos at any price over £50 (so the transaction represents a £50 profit for her), and the buyer would have paid up to £150 had that been the asking price (the transaction therefore representing a £50 profit for him). In other words, by honouring the transaction, each stands to gain £50.

eBayer’s dilemma payoff table'	Buyer cooperates	Buyer defects
Seller cooperates	Buyer gets £50 Seller gets £50	Buyer gets £150 Seller gets -£50
Seller defects	Buyer gets -£100 Seller gets £150	Buyer gets £0 Seller gets £0

When settling the transaction, each has the following risks:

• Cooperation: If the seller posts and the buyer pays:
  • The seller will get £100 but will lose a video it values a £50 (+£50).
  • the seller will get a video it values at £150 but must pay £100 (+50)
• buyer defects: If the seller posts, but the buyer does not pay:
  • The buyer will have video it values at £150 for free (+£150)
  • The seller has given away a video it values a £50 for nothing (-£50).
• Seller defects: If the buyer pays but the seller does not post:
  • The buyer will have paid £100 for nothing (-£100)
  • The seller will receive £100 and will still have the video it values a £50 (+£150).
• Mutual defection If the seller does not post and the buyer does not pay:
  • The seller is in its original position (£0).
  • The buyer is in its original position (£0).

See also

• Prisoner’s dilemma
• Agency problem