Table 11-9 Alpha and Beta Are the Only Firms Selling

question 141

Multiple Choice

Table 11-9
Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 11-9 shows the payoff matrix for this game.
-Refer to Table 11-9.How are the firms in this game caught in a prisoner's dilemma?

• A) They are not in a prisoner's dilemma because there is one clear strategy for each.
• B) They would be more profitable if they refrained from offering a student discount, but each fears that if it does not offer a student discount it will lose customers.
• C) Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers.
• D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

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Definitions:

Financial Scandals

Instances of dishonesty or unethical behavior in the financial industry, often involving the theft of funds or manipulation of financial markets.

Corporate Merger

The combining of assets and operations of two companies to form a single entity, often with the aim of increasing market share or reducing costs.

Corporate Mergers

The combination of two or more companies into a single corporate entity, with one of the companies surviving and the others ceasing to exist.

Conglomerate Merger

A business combination of two or more companies operating in entirely different industries.