Scenario 17-2. Imagine that two oil companies, Mobile and Cargo, own adjacent oil fields. Under the fields is a common pool of oil worth $96 million. Drilling a well to recover oil costs $3 million per well. If each company drills one well, each will get half of the oil and earn a $45 million profit ($48 million in revenue - $3 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue.
-Refer to Scenario 17-2.Cargo's dominant strategy would lead to what sort of well-drilling behavior?

Question

Quizplus · Accepted Answer

Cargo's dominant strategy is to always drill a second well because it maximizes its profit regardless of Mobile's actions. By drilling a second well, Cargo can increase its share of the oil revenue.