Question

Given below are the payoff tables for two airlines. Please explain why the airlines are better...

Given below are the payoff tables for two airlines. Please explain why the airlines are better off either raising prices together or lowering prices together.

Airline A

Airline B

Low Price

High Price

Low Price

(15, 15)

(10, −8)

High Price

(−8, 10)

(15, 15)
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Answer #1

When Airline A lowers price then it will either earn 15 or 10, Airline B will have to lower price as 15>-8

When Airline B lowers price then it either earn 15 or 10, Airline A will have to lower price as 15>-8

similarly,

When Airline A increases price it will either earn -8 or 15,Airline B will increase price as 15>10

When Airline B increases price then it will either earn -8 or 15, Airline A will increase price as 15>10

so,both the airlines are better off either increasing the prices or decreasing the prices together in order to get maximum payoff.

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