Refer to the table of information about Go-Fast and Interweb again. What will be the likely outcome if the two firms act in a rivalrous (competitive) manner?

Question

BlackTom AI · Accepted Answer

Cheating (i.e., choosing the rivalrous/competitive strategy) is each firm’s dominant strategy, so the equilibrium yields the (10, 10) payoff.

Relevant concepts: dominant strategy, payoff matrix, Nash equilibrium, and the prisoner's-dilemma-like logic for collusion versus competition. In a 2×2 payoff matrix where each firm can “Collude” or “Cheat/Compete,” payoffs typically look like: (Collude, Collude) = (50, 50); (Collude, Cheat) = (5, 70); (Cheat, Collude) = (70, 5); (Cheat, Cheat) = (10, 10). These numbers match the answer choices and show the tradeoff between cooperative monopoly profits and competitive outcomes.

Step-by-step reasoning:
1. Write the payoff matrix explicitly:
   - Both collude → each gets 50.
   - Interweb cheats while Go-Fast colludes → Interweb 70, Go-Fast 5.
   - Go-Fast cheats while Interweb colludes → Go-Fast 70, Interweb 5.
   - Both cheat (both act rivalrously) → each gets 10.
2. Check best responses for each firm:
   - If the other firm colludes, cheating yields 70 (better than 50 from colluding). So cheating is better.
   - If the other firm cheats, cheating yields 10 (better than 5 from colluding). So cheating is better.
   => Cheating/competing is a dominant strategy for both firms.
3. Because both firms have the same dominant strategy, the Nash equilibrium is (Cheat, Cheat), giving payoffs (10, 10).

Why the correct answer is correct: the competitive (rivalrous) interaction corresponds to both firms choosing the cheat/compete strategy in the matrix. Given the dominance argument above, the stable outcome (Nash equilibrium) is both firms competing and each earning $10 million.

Why other options are incorrect:
- Option b/c (70 vs 5 or 5 vs 70) are asymmetric outcomes that require one firm to collude while the other cheats; these are not stable equilibria because the colluding firm could instead cheat and increase its payoff.
- Option d (both earn $50) is the collusive monopoly outcome, which is Pareto-superior but not stable: each firm has an incentive to deviate and cheat to earn 70.

Conclusion: therefore, when the two firms act in a rivalrous (competitive) manner, both will earn $10 million each, matching answer a.

Refer to the table of information about Go-Fast and Interweb again. What will be the likely outcome if the two firms act in a rivalrous (competitive) manner?单项选择题

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