In reference to the Lowe's and Home Depot example in the textbook (prisoner's dilemma), equilibrium will occur when:
A) both firms set the price at the high price.
B) Lowe's sets the price at the high price and Home Depot sets price at the low price.
C) Lowe's sets the price at the low price and Home Depot sets price at the high price.
D) both firms set the price at the low price.

Question

Quizplus · Accepted Answer

In a prisoner's dilemma, the equilibrium occurs when both parties choose the strategy that is best for them individually, even though it leads to a worse outcome collectively. Here, both firms setting the price at the low price is the Nash equilibrium, as neither firm can benefit by unilaterally changing their strategy.

In Reference to the Lowe's and Home Depot Example in the Textbook