Chapter 10

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."

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."

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."

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."

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."

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."

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."

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."

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 a 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."

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 a 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."