Escaping the Prisoner’s Dilemma: A Game-Theoretic Analysis of Price Wars in Meituan’s Food Delivery Ecosystem

Abstract

This paper employs the Prisoner’s Dilemma framework to analyze the self-destructive price war between China’s food delivery duopoly, Meituan and Ele.me. This intense competition, characterized by deep subsidies and mutual financial losses, presents a quintessential case of how rational individual strategies lead to collectively suboptimal outcomes in a two-sided market. The analysis first describes the current competitive situation, framing the platforms’ strategic choices within a payoff matrix where “defection” (price-cutting) is the dominant strategy, leading to a stable but inefficient Nash Equilibrium. It further examines the significant barriers to cooperation, including some regulations, the threat of new entrants, and profound information asymmetry. To break this deadlock, the study proposes strategic interventions aimed at altering the fundamental payoff structure, such as competing on non-price dimensions (e.g., service quality, ecosystem integration) and fostering institutional transparency to lower the barriers to cooperation. The study concludes that transcending this dilemma is imperative for the industry’s sustainable development, providing a strategic roadmap for managers to transition from destructive competition to a virtuous cycle of innovation. The findings offer actionable insights for stakeholders in oligopolistic two-sided markets globally that are susceptible to similar competitive traps.