(Table) Boeing and Airbus can either comply with a cartel agreement or cheat. Based on the table, where Boeing's payoff is listed first in each outcome, if this game is played repeatedly and both firms adopt strategies such that the cooperative equilibrium emerges
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { Airbus }\
\begin{array}{ccc}
&& \text { Cheat } & \text { Comply } \
\text {Boeing } &\text { Cheat } & \$ 0, \$ 0 & \$ 3 \text { million, }-\$ 1 \text { million } \
&\text { Comply } & -\$ 1 \text { million, } \$ 3 \text { milton } & \$ 2 \text { million, } \$ 2 \text { million }
\end{array}\end{array}$
A) both Boeing and Airbus will cheat.
B) Boeing will cheat and Airbus will comply.
C) Boeing will comply and Airbus will cheat.
D) both Boeing and Airbus will comply.

Question

(Table) Boeing and Airbus can either comply with a cartel agreement or cheat. Based on the table, where Boeing's payoff is listed first in each outcome, if this game is played repeatedly and both firms adopt strategies such that the cooperative equilibrium emerges
$\begin{array}{c}
\quad \quad \quad \quad \quad \quad \quad \quad \text { Airbus }\
\begin{array}{ccc}
&& \text { Cheat } & \text { Comply } \
 \text {Boeing   } &\text { Cheat } & \$ 0, \$ 0 & \$ 3 \text { million, }-\$ 1 \text { million } \
&\text { Comply } & -\$ 1 \text { million, } \$ 3 \text { milton } & \$ 2 \text { million, } \$ 2 \text { million }
\end{array}\end{array}$
A) both Boeing and Airbus will cheat.
B) Boeing will cheat and Airbus will comply.
C) Boeing will comply and Airbus will cheat.
D) both Boeing and Airbus will comply.

Quizplus · Accepted Answer

In a repeated game, both Boeing and Airbus have an incentive to cooperate to achieve the cooperative equilibrium, which yields them each \$2 million, rather than risking the lower payoffs associated with cheating. This is because, over time, cooperation can be sustained through strategies like "tit-for-tat," where each firm's current action is based on the other firm's previous action, encouraging mutual compliance.

(Table) Boeing and Airbus Can Either Comply with a Cartel