Suppose That Currently There Are No Airlines Serving the City

question 32

Multiple Choice

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decision to enter the South Podunk market?

• A) Accommodating Airlines has a first-mover advantage in this game.
• B) Both airlines are better off by entering this market.
• C) Friendly Flyers has a first-mover advantage in this game.
• D) The outcome of this game is a prisoner's dilemma.

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