Managerial Economics 2nd Edition by William Boyes

Exercise 19

At one time a major U.S. airline proposed that all airlines adopt a uniform fare schedule based on mileage. Doing so would have eliminated the many different fares that were available at the time. Most major airlines applauded the suggestion and began to adopt the plan. Soon, however, various airlines began cutting fares. Explain this occurrence using the prisoner's dilemma.