BP#7 The Automotive Prisoner’s Dilemma

Ford announced recently that it will be building a new plant in Mexico. The new plant will take over the production of the smaller compact cars like the Focus. However, America is not necessarily losing out on its jobs. The plant in Wayne, MI that used to produce the focus line will be retooled to accommodate larger SUV’s. Ford’s chief executive, Mark Fields, explains that Ford has no intent of taking jobs away from the American people and that closing factories is the last thing he wants. He also explains that in order to do both of those things, Ford has to be competitive with the industry and maintain their profitability.

I see this article as being a good example of the prisoner’s dilemma. In the prisoner’s dilemma, there is competition over a scarce resource. If each party stopped being so selfish, each party would be better off. However, because the parties cannot agree, everyone is forced to play along or risk being left behind and out of contention.

Although keeping each and every production job here in America is the ideal situation for us as a country, Ford is stuck. With GM, Honda, Toyota, Volkswagon, and BMW taking advantage of Mexico’s cheap labor, all of their products can be sold for less even and still cause the companies to remain profitable. If Ford decides to keep all business in America, they lose out on the competitive advantage of price. Ford would go under if they kept the same prices with the increased cost of labor. However, if they raise the prices of their cars in order to compensate for money lost, consumers will simply go to the less expensive options, and Ford will lose sales and fail. If each automotive company decided to all produce the same way, then each company would be better off, thus breaking the prisoner’s dilemma. That, however, goes against the nature of the business world.

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