Question

Airlines in the Prisoner's Dilemma American Airlines and Delta Airlines once found themselves in a classic prisoner's dilemma It all started when Delta wanted to expand its share of the lucrative Dallas-to-Chicago route, where American was the dominant carrier Delta offered a substantial fare cut on that route to attract new travelers American threatened a price war by offering its own fare cut on the Delta-dominated Dallas-to-Atlanta route Both airlines had a dominant strategy to cut their are on the targeted route. Why Even the values are to lowering one alline cut its are and the other the price was still the move the than that did woulder dominant strateg-for each airine. Large prot($100.000 while the other Why? Because it an afine failed to match the care its realitud make suffered a largloss (-$200,000). This w each artin's best possible outcome American No Discount Discount -$100,000 -$200,000 Chago Discount Delta -$100.000 Dallas $100,000 $100,000 $50.000 No Discount All -$200.000 $50,000 REVIEW QUESTIONS The hallmark of a prisoner's dilemma is when two rivals follow their dominant strategy and the result is not the best result for both It would have been better if no fare discounts were ever considered What happened? Fortunately for both airlines, they posted their planned fare cuts on a computer system that allowed them to see what the rival was doing. They each saw the price war starting backed down, and escaped the prisoner's dilemmal - Which expected outcome in the select the Bule of American Delta pricing war? . Explain how the ability to Comunicare can allow two parties Copyright 2018 W. W. Norton & Company, Inc. Which of the following best explains why the actual outcome is different from the outcome predicted by game theory? Choose one: O A. Game theory assumes that rivals don't want to cooperate, but in the real world firms are more willing to cooperate. O B. One of the airlines decided to act in its rival's interest instead of its own. O C. These firms may not have been making rational decisions, D. The computer system allowed the two airlines to communicate with each other, and they could therefore

Answer 1

The correct answer is option A) which is explained by prisoner's dilemma where instead o choosing collusive outcomes where both players end up getting higher payoff chooses nash equilibrium which offers lower payoffs due to trust deficit.