-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix above shows the economic profit that each firm can make. If the game is played only once, then
A) Felix and Oscar will each make $10 million economic profit.
B) Felix will comply and Oscar will make $12 million economic profit.
C) Felix and Oscar will each make $1 million economic profit.
D) Felix will cheat and Oscar will make -$2 million economic profit.

Question

-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix above shows the economic profit that each firm can make. If the game is played only once, then
A) Felix and Oscar will each make $10 million economic profit. 
B) Felix will comply and Oscar will make $12 million economic profit. 
C) Felix and Oscar will each make $1 million economic profit. 
D) Felix will cheat and Oscar will make -$2 million economic profit.

Quizplus · Accepted Answer

In a one-time game, both firms have an incentive to cheat to maximize their own profit, leading to the Nash equilibrium where both make $1 million.

-Oscar and Felix Are the Only Firms That Clean Offices