Figure 17-4. Two companies, Acme and Bilco, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.

-Refer to Figure 17-4.In what sense is the game involving Acme and Bilco similar to the prisoners' dilemma game involving Bonnie and Clyde?

Question

Figure 17-4. Two companies, Acme and Bilco, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.
 
-Refer to Figure 17-4.In what sense is the game involving Acme and Bilco similar to the prisoners' dilemma game involving Bonnie and Clyde?

Quizplus · Accepted Answer

The game involving Acme and Bilco is similar to the prisoners' dilemma game involving Bonnie and Clyde in that both games have a dominant strategy for each player. In the case of Acme and Bilco, the dominant strategy is to charge a low price. This leads to a Nash equilibrium where both companies charge a low price and earn a profit of $6 million each. Similarly, in the prisoners' dilemma game, the dominant strategy for both players is to confess, leading to a Nash equilibrium where both players receive a prison sentence.