The major dilemma facing Boeing and Airbus is the
A) fact that neither will respond to the behavior of the other.
B) certainty surrounding the reaction of each firm to the behavior of the other firm.
C) fact that if each firm separately tries to maximize its profit, it might wind up with less profit that otherwise.
D) competition from other firms that drives their economic profit to zero.
E) fact that when they collude to maximize their profit, the other firm's profit might be larger than its profit.

Question

Quizplus · Accepted Answer

The major dilemma facing Boeing and Airbus is the fact that if each firm separately tries to maximize its profit, it might wind up with less profit than otherwise. This is because both firms are in a duopoly market where their actions affect each other's profits. Therefore, they face a prisoner's dilemma, where each firm has an incentive to act in its own self-interest, but if they both do so, they will end up with lower profits than if they had cooperated.

The Major Dilemma Facing Boeing and Airbus Is the