Chapter 10. Question 16

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Question 16
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You must read each slide, and complete any questions on the slide, in sequence.

The following shows a pricing game between Allegiant and Delta. Each airline has a choice between offering a fare sale or not offering a fare sale. The resulting profits of each airline are provided, where the first number in each payoff box equals Allegiant’s profit and the second number is Delta’s profit.

Delta
Fare Sale No Fare Sale
Allegiant Fare Sale 80 500 200 800
No Fare Sale 50 700 100 1200

Question

A. The best response strategy by Delta if Allegiant chooses Fare Sale is hzFTzmbQFEDHXGDfWy4WUlnupFGFFbpsTbdSOg==.
The best response strategy by Delta if Allegiant chooses No Fare Sale is hzFTzmbQFEDHXGDfWy4WUlnupFGFFbpsTbdSOg==.
Incorrect! Look at the row where Allegiant chooses “Fare Sale.” Delta could earn 500 profit if it also chooses “Fare Sale,” but 800 if it chooses “No Fare Sale.” The payoff for Delta is the highest if it chooses “No Fare Sale.”
In the second row, when Allegiant chooses “No Fare Sale,” Delta’s payoff is highest at 1200 when it chooses “No Fare Sale.” Notice that both of these payoffs are higher when Delta chose “Fare Sale.” For further review, see section “Simultaneous-Move Games” (link to section in ebook).
Correct! Look at the row where Allegiant chooses “Fare Sale.” Delta could earn 500 profit if it also chooses “Fare Sale,” but 800 if it chooses “No Fare Sale.” The payoff for Delta is the highest if it chooses “No Fare Sale.”
In the second row, when Allegiant chooses “No Fare Sale,” Delta’s payoff is highest at 1200 when it chooses “No Fare Sale.” Notice that both of these payoffs are higher when Delta chose “Fare Sale.” For further review, see section “Simultaneous-Move Games” (link to section in ebook).

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The following shows a pricing game between Allegiant and Delta. Each airline has a choice between offering a fare sale or not offering a fare sale. The resulting profits of each airline are provided, where the first number in each payoff box equals Allegiant’s profit and the second number is Delta’s profit.

Delta
Fare Sale No Fare Sale
Allegiant Fare Sale 80 500 200 800
No Fare Sale 50 700 100 1200

Question

B. The best response strategy by Allegiant if Delta chooses Fare Sale is X2wrypBhDly1FKpGRBYZilS5Z3maYUHl3DUXYQ==.
The best response strategy by Allegiant if Delta chooses No Fare Sale is X2wrypBhDly1FKpGRBYZilS5Z3maYUHl3DUXYQ==.
Incorrect! Look at the column when Delta chooses “Fare Sale.” Since the first number is Allegiant’s profit, it considers 80 or 50.The payoff for Allegiant is the highest if it chooses ”Fare Sale” and receives 80.
If Delta chooses “No Fare Sale,” Allegiant considers 200 or 100, and chooses “Fare Sale.” Notice that both of these payoffs are higher when Allegiant chose “Fare Sale.” For further review, see section “Simultaneous-Move Games” (link to section in ebook).
Correct! Look at the column when Delta chooses “Fare Sale.” Since the first number is Allegiant’s profit, it considers 80 or 50.The payoff for Allegiant is the highest if it chooses ”Fare Sale” and receives 80.
If Delta chooses “No Fare Sale,” Allegiant considers 200 or 100, and chooses “Fare Sale.” Notice that both of these payoffs are higher when Allegiant chose “Fare Sale.” For further review, see section “Simultaneous-Move Games” (link to section in ebook).

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The following shows a pricing game between Allegiant and Delta. Each airline has a choice between offering a fare sale or not offering a fare sale. The resulting profits of each airline are provided, where the first number in each payoff box equals Allegiant’s profit and the second number is Delta’s profit.

Delta
Fare Sale No Fare Sale
Allegiant Fare Sale 80 500 200 800
No Fare Sale 50 700 100 1200

Question

C. Allegiant’s dominant strategy is 3U6Yif7zp7FaFdAr9JTsU265Dl6iKyEx2VsjWM2jmBhOFcfd, while Delta’s dominant strategy is dDR6gQxWgCx9Qz/oEbIWGwzln+IZbG+AFsEvGWorgyEWSeWH.
Incorrect! A dominant strategy occurs when a player chooses the same strategy regardless of what his or her opponent chooses. The payoff for Allegiant is the highest if it chooses “Fare Sale,” regardless of Delta’s strategy. The payoff for Delta is the highest if it chooses “No Fare Sale,” regardless of Allegiant’s strategy. For further review, see section “Nash Equilibrium” (link to section in ebook).
Correct! A dominant strategy occurs when a player chooses the same strategy regardless of what his or her opponent chooses. The payoff for Allegiant is the highest if it chooses “Fare Sale,” regardless of Delta’s strategy. The payoff for Delta is the highest if it chooses “No Fare Sale,” regardless of Allegiant’s strategy. For further review, see section “Nash Equilibrium” (link to section in ebook).

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The following shows a pricing game between Allegiant and Delta. Each airline has a choice between offering a fare sale or not offering a fare sale. The resulting profits of each airline are provided, where the first number in each payoff box equals Allegiant’s profit and the second number is Delta’s profit.

Delta
Fare Sale No Fare Sale
Allegiant Fare Sale 80 500 200 800
No Fare Sale 50 700 100 1200

Question

D. The Nash equilibrium occurs when Allegiant chooses X2wrypBhDly1FKpGRBYZilS5Z3maYUHl3DUXYQ== and Delta chooses hzFTzmbQFEDHXGDfWy4WUlnupFGFFbpsTbdSOg==.
Incorrect! A Nash equilibrium is an outcome that occurs when all players choose their optimal strategy in response to all other players’ potential moves. At a Nash equilibrium, no player can be better off by unilaterally deviating from the noncooperative outcome. The payoff for Allegiant is the highest if it chooses “Fare Sale,” regardless of which strategy Delta chooses. The payoff for Delta is the highest if it chooses “No Fare Sale,” regardless of which strategy Allegiant chooses. Therefore, the Nash equilibrium occurs when Allegiant chooses “Fare Sale” and Delta chooses “No Fare Sale.” Neither airline can be made better off by deviating from this outcome. For further review, see section “Nash Equilibrium” (link to section in ebook).
Correct! A Nash equilibrium is an outcome that occurs when all players choose their optimal strategy in response to all other players’ potential moves. At a Nash equilibrium, no player can be better off by unilaterally deviating from the noncooperative outcome. The payoff for Allegiant is the highest if it chooses “Fare Sale,” regardless of which strategy Delta chooses. The payoff for Delta is the highest if it chooses “No Fare Sale,” regardless of which strategy Allegiant chooses. Therefore, the Nash equilibrium occurs when Allegiant chooses “Fare Sale” and Delta chooses “No Fare Sale.” Neither airline can be made better off by deviating from this outcome. For further review, see section “Nash Equilibrium” (link to section in ebook).

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The following shows a pricing game between Allegiant and Delta. Each airline has a choice between offering a fare sale or not offering a fare sale. The resulting profits of each airline are provided, where the first number in each payoff box equals Allegiant’s profit and the second number is Delta’s profit.

Delta
Fare Sale No Fare Sale
Allegiant Fare Sale 80 500 200 800
No Fare Sale 50 700 100 1200

Question

E. This game fLp8XZCVz+ZtyzXxguTxw7Y/lhw= resemble a Prisoner’s dilemma, but it does resemble a d6TEsSEV9vL6VElrU0yqaMEhvKDJ2rubzpy2JxcAvY/7K/Mb.
Incorrect! A Prisoner’s Dilemma is a noncooperative game in which players cannot communicate or collaborate in making their decisions, which results in inferior outcomes for both players. This game is not a Prisoner’s Dilemma, because Allegiant achieves its highest possible payoff. In other words, there is not better outcome for one of the players.
This situation resembles a Leadership game, where the market is dominated by a market leader. Delta is relatively large airline compared to Allegiant, so it can ignore Allegiant’s pricing strategy. Delta has market power, and it will not lose customers if it doesn’t follow Allegiant’s pricing. For further review, see sections “Prisoner’s Dilemma” and “Leadership Games” (link to sections in ebook).
Correct! A Prisoner’s Dilemma is a noncooperative game in which players cannot communicate or collaborate in making their decisions, which results in inferior outcomes for both players. This game is not a Prisoner’s Dilemma, because Allegiant achieves its highest possible payoff. In other words, there is not better outcome for one of the players.
This situation resembles a Leadership game, where the market is dominated by a market leader. Delta is relatively large airline compared to Allegiant, so it can ignore Allegiant’s pricing strategy. Delta has market power, and it will not lose customers if it doesn’t follow Allegiant’s pricing. For further review, see sections “Prisoner’s Dilemma” and “Leadership Games” (link to sections in ebook).