Two soft-drink producers, York Cola and Reno Cola, secretly collude to fix prices. Each firm must decide whether to abide by the agreement or to cheat on it. The payoff matrix is as follows:

a. What strategy will each firm choose, and what will be each firm's profit?
b. Does it matter whether this agreement is for one period or for three periods?
c. Is this game an example of the prisoner's dilemma?

Transcribed Image Text:

York Cola Abide by agreement Cheat Abide by agreement $29 mm, $29 mm $26 mm, $30 mm Reno Cola Cheat $30 mm, $26 mm $28 mm, $28 mm