Suppose Northwest Airlines follows a Grim trigger strategy in setting its prices. If Delta raises its domestic fares, then Northwest may:
A)raise its fares simultaneously.
B)raise its fares in the future.
C)always keep its fares lower than Delta's.
D)always keep its fares higher than Delta's.

Question

Quizplus · Accepted Answer

The Grim trigger strategy involves mimicking the actions of the other player. In this case, if Delta raises its domestic fares, Northwest will also raise its fares in the future. This is because the Grim trigger strategy is designed to punish the other player for defecting in the previous round, but also to allow for cooperation if the other player cooperates as well. By raising its fares in the future, Northwest is communicating to Delta that it will not tolerate unfair pricing practices and will respond accordingly.

Suppose Northwest Airlines Follows a Grim Trigger Strategy in Setting