munes IR the Prisoner\'s Dilemma American Airlines and Delta Airlines once found
ID: 1174026 • Letter: M
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munes IR the Prisoner's Dilemma American Airlines and Delta Airlines once found themselves in a classic t's dilemma. It all started when Delta wanted to expand its share ot the Dallas-to-Chicago route, where American was the dominant carrier Delta offered a substantial fare cut on that route to attract new travelers. Amencan threatened a price war by otfering its own fare cut on the Delta-dominated Dallas-to-Atlanta route. Both airlines had a deminant strategy to cut their fare on the targeted route. Why? If one airline cut its fares and the other Even if the riel cut its tare too, lowering muich the fare of t n iine faled te ess profit than befone iz7-29- Large proht ($100,000) while the ether suffered a large loss 1-$200,000), This was each arline's best possible outcome. eivel, it would make No Discount Chicage $100.000 $50.000 -$200,000 $50,000 The hallmark of a prisoners dilemma is when two rivals follow their dominant strategy and the result is not the best result tor both. It would have been REVIEW QUESTIONS better it no tare discounts were ever considered. Which expected outcome in the matrix reflects the American/Delta pricing waz? What happened? Fortunately tor both airtines. they posted their planned tare cuts on a computer system that allowed them to see what their rival wras doing. They each saw the price war starting backed down, and escaped the prisoner's dilemma Explain howw the abil?ty to communicate can allow two parties Copyright 2018 W. W. Norton & Company, Inc. Refer to the payoff matrix shown above. Suppose that instead of the game being played only one time, it is played every day for an indefinite period of time. Further suppose that Delta decides to play a strategy where it will offer no discount as long as American doesn't offer a discount, but that it will change its strategy and offer the discount if American offers a discount. strategy. We would say that Delta is playing a VIEW SOLUTIONS SUBMIT ANSWERExplanation / Answer
It has been stated that Delta decides to play a strategy where it will offer no discount as long as American does not offer a discount, but that it will change its strategy and offer the discount if American offers a discount.
The conduct of Delta indicates that it changes its strategy as per the strategy change adopeted by the American.
As American change it strategy, Delta respond by changing its strategy and adopting the strategy as adopted by the American.
Such kind of behavior as displayed by the Delta indicates that Delta is playing Tit-for-Tat Strategy.
Thus,
We would say that Delta is playing a Tit-For-Tat strategy.
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