Suppose that two drug manufacturers represent the only two producers in the industry and further suppose that the companies can spend a lot of money on research to develop new drug treatment.If only one develops a product, they make very high profits, but if they produce similar drugs, their profits are lower given the high research costs and they split the market for their products.But if they both sell their current products and spend little on research, they can still make good profits.This description sounds like a
A)credible threat.
B)monopolistically competitive market.
C)prisoner's dilemma.
D)Nash equilibrium.

Question

Quizplus · Accepted Answer

This situation describes the classic prisoner's dilemma where both players can benefit by cooperating and spending less on research but are incentivized to defect and pursue high profits individually. If both players choose to defect and develop similar drugs, they both end up worse off than if they had cooperated. This is a classic example of a game theory scenario.

Suppose That Two Drug Manufacturers Represent the Only Two Producers