Wanabe does some research and determines that the payoff matrix for the game in
ID: 1222237 • Letter: W
Question
Wanabe does some research and determines that the payoff matrix for the game in which it is engaged with Agile is that shown in Table 2. Does Wanabe believe Agile's assertion? Does Wanabe enter or not? Explain. Use this information to work Problems 5 and 6. 21 airlines fined in price-fixing scheme To date, 21 airlines have coughed up more than $1.7 billion in fines in one of the largest criminal antitrust investigations in U.S. history. To find a quick fix to avoid financial ruin, airlines came up with, according to federal prosecutors, a massive price-fixing scheme that artificially inflated international passenger and cargo fuel surcharges between 2000 and 2006. The scheme cost consumers hundreds of millions of dollars. The Justice Department called the case one of the largest antitrust settlements in U.S. history. Source: Associated Press, March 5, 2011 Explain how the price-fixing scheme benefited the airlines and imposed costs on consumers. Describe the price-fixing scheme as the equilibrium outcome of an oligopoly cartel game played by the airlines. Explain why the cartel survived.Explanation / Answer
When competitors in an oligopoly collude to fix prices at a certain level, price fixing game occurs. Both the firms that collude and fix prices will have profit maximizing outcomes. But, such practice is often outlawed by anti-trust laws.
A cartel is a situation, where group of firms work together to control the market with their behavior.
Thus, the group of airlines that participated in price fixing formed into a cartel. Furthermore, cartels break down as price exceeds marginal cost. Thus, each firm will plan to incre3ase their output.
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