Firms will choose a tit-for-tat strategy if they:

Question

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A tit-for-tat strategy involves one firm mirroring the actions of its competitor. This is a good strategy when firms expect to be competing in the industry for a long time, as retaliation can establish a reputation for not being pushed around. If firms believe that interdependence is not a prominent characteristic of the industry, then they may not see the need to engage in tit-for-tat behavior. If cheating behavior will go unnoticed, then a tit-for-tat strategy may not be effective, as the cheating firm can continue to benefit without facing any consequences. Expecting that price wars will ultimately provide benefits for the dominant firm is not a factor in choosing a tit-for-tat strategy.

Firms Will Choose a Tit-For-Tat Strategy If They