Can you please give me short 5 intelligent questions about this topic to ask to
ID: 1116510 • Letter: C
Question
Can you please give me short 5 intelligent questions about this topic to ask to the presenter?
The Airlines’ Fare War and Prisoners’ Dilemma
Strategic Behavior
A plan of action or behavior of an
oligopolist, after taking into
consideration all possible
reactions of its competitors, as
they compete for profit or other
advantages.
Game Theory
The study of such strategic
behaviors, used to choose the
best optimal strategy in conflict
situations.
Within an oligopolistic firm, game
theory shows how to make
strategic decisions to gain a
competitive edge or how it can
minimize a harmful move by a
rival.
Players: The decision makers in the scenario.
Strategies: The choices to change price, develop new products, undertake
a new advertising campaign, build new capacity, and all other actions
that could affect sales and profitability of the firm at its rivals.
Payoff: The outcome or consequence of each strategy.
Payoff Matrix: A table giving the payoffs from all strategies open to the firm
and the rivals’ responses.
Dominant Strategy
Dominant strategy is the best
option, regardless of whatever
move the other player makes.
Prisoners’ Dilemma
A situation in which each firm
adopts its dominant strategy but
each could do better by
cooperating.
Prisoners’ Dilemma Examples
The Airlines’ Fare War
In April of 1992, American Airlines
lowered prices for business and
leisure flights.
Coach fares were cut by an
average of 38%.
First class fares were cut by 20-
50%.
Many other airlines began cutting
their prices.
Instead of lowering fares being
offset by increasing air travel, a
price war began.
This price war began when TWA
cut it’s fares10-20% lower than
American Airlines’.
Soon after, American and other
airlines matched TWA’s prices.
This war began to cause major
losses
The Airlines’ Fare War
In the fall, multiple attempts to
increase airfares all failed
because not all carriers went
along and customers did not
want to pay the higher prices
anymore.
They were in a prisoners’ dilemma
because of the lack of
cooperation.
The Airlines’ Fare War Example
If American Airlines and the other
both lower their prices, they’ll
both end with a profit of 400
million.
If they both increase prices, they’ll
both end up with a profit of 600
million.
If one increases and the other
does not, the one who increased
will receive 200 million in profit
and the other will receive 800
million.
Split or Steal Example
If both choose to split the money,
each will receive $25,000.
If they both choose to steal,
they’ll each receive nothing.
If one chooses to steal and the
other does not, the one who stole
will receive $50,000. The other will
receive nothing.
Explanation / Answer
The five question we can ask about this topic are given below.
1) What could be the best pricing strategy in oligopoly?
2) Under which situation losses can be minimized?
3) What will happen at equilibrium if both players choose dominant strategy?
4) What will eventually happen if players fail to meet an agreement?
5) What will u choose to ‘split’ or ‘steal’?