A friend of mine who works as a car sales person recently explained to me how she and her colleagues are paid. They get a very low base salary and make most of their money of off commissions and bonuses. They get 25% of the profit that the dealership makes on each car they sell, an additional 500$ if they sell more than 5 cars per month, a free car lease if they manage to maintain a steady rate of more than 10 cars per month (they have to pay for the lease if they fall below that rate of sales), and a bonus for the top seller at the dealership each month. They keep a score board in the office of how many each person sold per month.
The part that surprises me is that the system is setup such that all the sales people are in direct competition with each other. Although the dealership profits either way, from the sales person's point of view it is a zero sum game, an additional sale closed by a colleague is one less sale for me, assuming that the number of potential customers walking through the door is predetermined.
This isn't just theoretical, she has relayed all sorts of stories of back stabbing and selfish behavior among the team. Nor is it limited to her car dealership, it is the norm across dealerships, at least in our part of the US.
My philosophical question here is that this doesn't make sense to me from the dealership's point of view: Doesn't game theory in general indicate that in such situations, cooperation will benefit the group better than selfish behavior? Doesn't the dealership stand to benefit more from having the sales people work together to achieve more sales, than for each individual to try to sell as many cars as possible, even at the cost of preventing other people from closing sales?
Consider the following scenario: There are two sales people, one very experienced and the other a beginner. Two customers walk in at the same time, one is still shopping around and hasn't made up their mind, while the other is decided and is ready to sign a lease on the spot (In real life, they can tell these two types of customers apart from experience, and they call the second type spoons).
They way things are set up now, the experienced person (who typically has more seniority in the office) will try to 'snatch' the spoon and leave the undecided customer to the rookie - since this allows them to maximize their income. Being inexperienced, the second sales person has a low probability of convincing the customer of purchasing a car. The dealership as a whole loses, since the experienced sales person would have had a higher chance of closing the deal. That's what usually happens in real life.
If their pay structure was more inductive to cooperation, the experienced sales person would have handed the sure fire customer over to the rookie, and focused their efforts on the undecided customer. The dealership as whole would have potentially made two sales instead of one.
From a game theory point of view, isn't the second scenario more beneficial for the dealership? In particular isn't this scenario similar to the prisoners dilemma, where even though it is possible to maximize individual profit by being selfish, the group as a whole benefits more from cooperation than from selfishness?
- Is it correct to assume that game theory in general indicates that cooperation is better in such situations than competition?
- Is my reasoning w/r to the experienced sales person helping the rookie being a more beneficial strategy to the dealership as whole correct?
- Is the prisoner's dilemma indeed relevant to this situation or not?