Table 17-26
Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with side-effects from its drugs. Each drug manufacturer has evidence that indicates that taking its prescription drug causes liver failure. State prosecutors do not have access to the same data used by drug manufacturers and thus will have difficulty recovering full costs without the help of at least one of the drug manufacturer's studies. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states.
-Refer to Table 17-26. Which of the following statements is correct?

Question

Table 17-26
Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with side-effects from its drugs. Each drug manufacturer has evidence that indicates that taking its prescription drug causes liver failure. State prosecutors do not have access to the same data used by drug manufacturers and thus will have difficulty recovering full costs without the help of at least one of the drug manufacturer's studies. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states. 
-Refer to Table 17-26. Which of the following statements is correct?

Quizplus · Accepted Answer

Both companies have a dominant strategy to cooperate with the states' attorneys in order to decrease their liability. This is because if one firm cooperates and the other does not, the cooperating firm will face lower liability while the non-cooperating firm will face the full costs. Therefore, both firms will choose to cooperate, regardless of their opponent's strategy. This game is not a prisoner's dilemma because there is a mutually beneficial outcome (both firms cooperating) rather than a situation where both firms are worse off by making decisions in their own self-interest. If this game were repeated, the firms would still have the same dominant strategy to cooperate because the outcome of the first round provides a precedent for future rounds.

Table 17-26 Two Prescription Drug Manufacturers (Firm a and Firm B) Are