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:

Banking Syndicate

A group of banks that come together to jointly finance a large project or loan, sharing the risk.

Economic Depression

A long-term downturn in economic activity characterized by high unemployment, low consumer spending, and a decline in industrial output.

Staggering

Astonishing or deeply shocking in scale, magnitude, or degree.

Suffer

To experience or be subjected to something bad or unpleasant.