Glossary · Game Theory
Dominant Strategy
also: strictly dominant strategy · weakly dominant strategy · dominant-strategy equilibrium · strategic dominance
Definition
A dominant strategy yields at least as high a payoff as every alternative regardless of what other players do. When each player has one, the outcome is a dominant-strategy equilibrium, the most robust prediction in game theory because it requires no beliefs about rivals. Second-price auctions are prized precisely because truthful bidding is dominant.
Dominance is the strongest solution concept available: a player does not need to know what others will do, only that one action beats every other action in every state of the world. Strict dominance means strictly better in every case; weak dominance allows ties. Few interesting business games have dominant strategies, which is why designers try to build them in. The Vickrey auction's truthful-bidding property and the strategy-proofness of deferred-acceptance matching are the celebrated examples. When a dominant strategy does exist and it is destructive, as in the prisoner's dilemma, the only remedies are to change the payoffs, repeat the game so reputations matter, or bind the players with commitment devices.
Essays on this concept
- Game Theory
The Prisoner's Dilemma of Discounting: Why Every Retailer Promotes and Nobody Wins
Persistent discounting is not a marketing failure but an equilibrium. Varian, Lal, and the folk theorem explain why every retailer promotes, and why P&G and J.C. Penney could not simply stop.
- Game Theory
Auction Theory for Ad Buyers: What the Death of Second-Price Means for Bidding
Media buyers learned to bid their true value in a second-price world. Programmatic display switched to first-price in 2019, and search was never truthful. The mechanism decides who keeps the margin.
- Game Theory
Mechanism Design for Marketplaces: Incentive Compatibility as a Product Requirement
Ratings, reviews, rankings, and fees are mechanisms, and users play them. eBay feedback ran 99.3% positive while 3.39% of sales went bad. Incentive compatibility is the test, and it belongs in the spec.
- Marketing Strategy
Evolutionary Game Theory for Marketing Strategy: Why Categories Converge on One Playbook, and When Deviating Pays
Every SaaS site and DTC brand converges on one playbook because strategy spreads by imitation, not reasoning. Evolutionary game theory predicts convergence, cycles, and the narrow window where deviating actually pays.
- Digital Economics
Two-Sided Network Effects Are Dead, The Rise of Multi-Sided Algorithmic Marketplaces
The textbook model of two-sided markets, more buyers attract more sellers attract more buyers, is a relic. The platforms that win today run on algorithmic matching, not network density. The implications for defensibility are profound.
- Digital Economics
The Economics of Zero Marginal Cost Bundling: When Adding Products Decreases Revenue
In digital markets, the marginal cost of adding one more product to a bundle is zero. Conventional wisdom says bundle everything. The data says the opposite, past a threshold, each addition dilutes the bundle's perceived value and total willingness to pay drops.
Authoritative references