Consider an example of the prisonerʹs dilemma where 2 firms are making sealed bids on a highway-construction contract and each firm is allowed to bid either $100 million or $120 million.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The
Non-cooperative outcome in this situation is

Question

Quizplus · Accepted Answer

Both firms have a dominant strategy to bid $100 million, as this guarantees them a payoff of at least $50 million (half of their bid) regardless of what the other firm does. This results in a non-cooperative outcome where both firms end up bidding $100 million.

Consider an Example of the Prisonerʹs Dilemma Where 2 Firms