The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
-Refer to the payoff matrix above.Suppose a new element was introduced into the agreement: if one firm cheats today,the other firm will cheat tomorrow but if one firm abides today,the other will abide tomorrow.This strategy pattern is known as
A) the prisoner's dilemma
B) cartel-like behavior
C) tit-for-tat.
D) mutual cooperation
E) incredible promise.

Question

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement. 
-Refer to the payoff matrix above.Suppose a new element was introduced into the agreement: if one firm cheats today,the other firm will cheat tomorrow but if one firm abides today,the other will abide tomorrow.This strategy pattern is known as
A) the prisoner's dilemma 
B) cartel-like behavior 
C) tit-for-tat. 
D) mutual cooperation 
E) incredible promise.

Quizplus · Accepted Answer

With the introduction of the tit-for-tat strategy, it is best for both firms to abide by the agreement. If one firm cheats today, the other will cheat tomorrow, leading to lower total revenue for both firms in the long run. However, if both firms abide by the agreement, they can maximize their joint profits. This strategy allows for mutual cooperation and avoids the negative consequences of the prisoner's dilemma or cartel-like behavior.

The Market for Bagels in Charlottetown,PEI Contains Two Firms: BagelWorld