What is the prisoner's dilemma?

Since you have placed this in the business section, I will
discuss this game in connection with business.  

In this
game, two players must decide whether to compete against one another or to cooperate.
 They do this without talking to the other or knowing what the other will do.  It is
based on the idea of two prisoners being interrogated separately for a crime.  If they
both confess and try to implicate the other (if they compete) they both get medium
sentences.  If one confesses and the other does not, the one who confesses gets off scot
free while the other gets a long term.  If they both refuse to confess, they get short
sentences.  In this way, they have to decide what is best for them and they have to
predict what their rival will do.

This has an application
to business.  If you have a close competitor, the two of you must play a prisoner's
dilemma game of sorts.  You must both decide how to price your product.  If, for
example, you lower your price, it is the equivalent of confessing in the prisoners'
dilemma.  If your competitor also lowers prices, you both lose.  If your competitor
keeps his prices high, you win and he loses because you get more market share.  In this
way, the prisoner's dilemma can help you think about how businesses work when
competing.