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What is the cooperative outcome

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Corsicana is a very small town with two fast-food restaurants, BK and Mac, situated on opposite corners of the only busy intersection in town. BK and Mac compete on the basis of the prices they set for their burger, fry, and soda combination meals. The Corsicana Gazette, the local newspaper in which they advertise their prices, is published once a month. On the last day of the month, BK and Mac simultaneously choose their combo meal prices, which will remain in effect for all of the next month. The managers at BK and Mac only consider two possible prices: a low price of $3 or a high price of $4. The monthly profits from each of the four possible combinations of decisions are given in the following table: BK's combo price Low ($3) High ($4) Mac's combo price Low ($3) A $3,000, $5,500 B $6,500, $5,000 High ($4) C $2,000, $9,000 D $5,000, $8,000 Payoffs in dollars of monthly profit.

a. Is the pricing decision facing Mac and BK a prisoners' dilemma? Why or why not?

b. What is the cooperative outcome? What is the noncooperative outcome?

c. Which cell(s) represent cheating in the pricing decision? Explain.

d. If Mac and BK make their pricing decision just one time, what are their pricing decisions likely to be? Explain

Reference no: EM133126495

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