Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot
Question:
Alcoa and Kaiser, duopolists in the market for primary aluminum ingot, choose prices of their 500 foot rolls of sheet aluminum on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they can make.
Alcoa High price Low price Kaiser High price A $400, $500 B $175, $575 Low price C $525, $200 D $273, $250 Payoffs in millions of dollars of profits per month.
Is the pricing decision facing Alcoa and Kaiser a prisoners’ dilemma?
Why or why not? What is the cooperative outcome?
What is the non-cooperative outcome?
Which cell(s) represents cheating in the pricing decision? Explain.
If Alcoa and Kaiser make their pricing decision just one time, will they choose the cooperative outcome? Why or why not?
Expert Answer:
Yes pricing decision facing Alcoa and Kaiser is prisoners dilemma because in the above case firms fa... View the full answer
