Question $4(3$ points$)$

Consider that two major airlines, Delta Air Lines and American Airlines, operate on a competitive route from New York to Los Angeles. Both airlines offer similar services, have comparable cost structures, and regularly interact in the market where they can choose to set either high fares $($cooperative pricing$)$ or low fares $($competitive pricing$).$

Each airline's profit for this route depends on the pricing strategy chosen by both airlines as described by the following payoff matrix:

If the airlines compete only once in the market, then the likely $($expected$)$ outcome is that

Delta Air Lines will set high fares and American Airlines will set high fares.

Delta Air Lines will set low fares and American Airlines will set low fares.

Delta Air Lines will set low fares and American Airlines will set high fares.

Delta Air Lines will set high fares and American Airlines will set low fares.