Big W

-Big W and Kmart must decide whether to lower their prices, based on the economic profits shown in the table above. Which of the following is true?
A) Both Big W and Kmart would jointly be better off if they could each keep their prices high.
B) If Kmart lowers its prices, Big W should keep its prices high.
C) This situation is not a prisoners' dilemma.
D) If Big W lowers its prices and Kmart does not, Big W will make a $20 million economic profit.

Question

Big W
 
-Big W and Kmart must decide whether to lower their prices, based on the economic profits shown in the table above. Which of the following is true?
A) Both Big W and Kmart would jointly be better off if they could each keep their prices high. 
B) If Kmart lowers its prices, Big W should keep its prices high. 
C) This situation is not a prisoners' dilemma. 
D) If Big W lowers its prices and Kmart does not, Big W will make a $20 million economic profit.

Quizplus · Accepted Answer

This scenario is a classic example of a prisoners' dilemma, where both parties (Big W and Kmart) would benefit from cooperating (keeping prices high) but face incentives to defect (lower prices) due to the structure of the payoffs, leading to a potentially less optimal outcome for both.

Big W -Big W and Kmart Must Decide Whether to Lower Their