Antel and IMD both produce similar computer chips, and the two companies dominate this market.
The table shows the choices available to Antel and
IMD in terms of total output and the profits they would make in each of these situations. Use this table to answer the four questions.
a. ?Using what you know about the prisoner’s dilemma, what would be the profit for Antel and IMD in millions?
Antel options
Increase production (act independently)
IMD options
Antel profit: $
million
IMD profit: $
million
The correct answer and explanation is:
The prisoner’s dilemma is a situation in game theory where two players (or firms) have the option to cooperate or act independently. Acting independently typically yields higher individual rewards in the short term but can lead to worse outcomes for both in the long term if both choose to defect.
To answer the question properly, I’d need the specific profit values from the table you’ve referenced. However, here’s how to reason through the scenario:
- Cooperation: If Antel and IMD agree to maintain production at lower levels, they might both achieve higher profits by avoiding market saturation.
- Independent Action: If both increase production (act independently), the market becomes saturated, and profits for both firms decrease. This is the classic “mutual defection” outcome in the prisoner’s dilemma.
- Outcome:
- If one firm cooperates (low production) and the other defects (high production), the defecting firm captures a larger market share and makes a higher profit, while the cooperating firm’s profit decreases.
- If both defect (increase production), both make lower profits due to oversupply.
General Correct Answer
If this is indeed a prisoner’s dilemma, the outcome where both firms act independently (defect) would result in lower profits for both firms. You’ll typically find these values in the lower right corner of the payoff matrix for a prisoner’s dilemma problem.
If you provide the table or specific profits, I can calculate and provide the exact numbers.