Table 14-4

Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising budget to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit.Table 14-4 shows the payoff matrix for this advertising game.
-Refer to Table 14-4.How are the firms in this advertising game caught in a prisoner's dilemma?

Question

Table 14-4
  
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising budget to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit.Table 14-4 shows the payoff matrix for this advertising game.
-Refer to Table 14-4.How are the firms in this advertising game caught in a prisoner's dilemma?

Quizplus · Accepted Answer

The firms are caught in a prisoner's dilemma because they would be collectively better off not increasing their advertising budgets, but each firm fears losing customers if it does not advertise. This creates a situation where both firms choose to advertise, resulting in a less desirable outcome for both than if they had both chosen not to advertise.

Table 14-4 Alistair Luggage and Baine Baggage Are the Only Firms Selling