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This discussion question has three parts, a, b, and, c. Be sure to answer all three parts: Read the Andrew Sorkin article, "As Oil Prices Fall, Airfares Still Stay High", on a preceding page. Prompts: a.) Describe the characteristics of the market structure of the airline industry applying specific terms to explain the market characteristics of this industry and explain how strategic interdependence specifically applies to the airline industry's price setting abilities or practices described in the article. b.) Using game theory, describe what you think a Nash equilibrium on setting price would look like among the players in the airline industry described in the article, and c.) Now consider the Prisoner's Dilemma applied to this situation. Does the Prisoner's Dilemma apply to the four major airlines? (Your explanation must start out with a "yes" or "no" answer.) If you decide the Prisoner's Dilemma doesn't apply, explain how the four major airlines successfully manage to avoid the inferior outcome of the Prisoner's Dilemma in making their pricing decisions? If you decide the the Prisoner's Dilemma does apply then explain why you think it applies. Hint: use terms like implicit (silent) collusion, or, explicit (open) collusion; collective or individual market power; collusion or cooperation; positive profit margins or normal profit margins, etc. Please see the textbook for a complete Prisoner's Dilemma discussion.

This discussion question has three parts, a, b, and, c. Be sure to answer all three parts: Read the Andrew Sorkin article, "As Oil Prices Fall, Airfares Still Stay High", on a preceding page. Prompts: a.) Describe the characteristics of the market structure of the airline industry applying specific terms to explain the market characteristics of this industry and explain how strategic interdependence specifically applies to the airline industry's price setting abilities or practices described in the article. b.) Using game theory, describe what you think a Nash equilibrium on setting price would look like among the players in the airline industry described in the article, and c.) Now consider the Prisoner's Dilemma applied to this situation. Does the Prisoner's Dilemma apply to the four major airlines? (Your explanation must start out with a "yes" or "no" answer.) If you decide the Prisoner's Dilemma doesn't apply, explain how the four major airlines successfully manage to avoid the inferior outcome of the Prisoner's Dilemma in making their pricing decisions? If you decide the the Prisoner's Dilemma does apply then explain why you think it applies. Hint: use terms like implicit (silent) collusion, or, explicit (open) collusion; collective or individual market power; collusion or cooperation; positive profit margins or normal profit margins, etc. Please see the textbook for a complete Prisoner's Dilemma discussion.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter13: best-practice Tactics: Game Theory
Section: Chapter Questions
Problem 1E
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This discussion question has three parts, a, b, and, c. Be sure to answer all three parts: Read the Andrew Sorkin article, "As Oil Prices Fall, Airfares Still Stay High", on a preceding page. Prompts: a.) Describe the characteristics of the market structure of the airline industry applying specific terms to explain the market characteristics of this industry and explain how strategic interdependence specifically applies to the airline industry's price setting abilities or practices described in the article. b.) Using game theory, describe what you think a Nash equilibrium on setting price would look like among the players in the airline industry described in the article, and c.) Now consider the Prisoner's Dilemma applied to this situation. Does the Prisoner's Dilemma apply to the four major airlines? (Your explanation must start out with a "yes" or "no" answer.) If you decide the Prisoner's Dilemma doesn't apply, explain how the four major airlines successfully manage to avoid the inferior outcome of the Prisoner's Dilemma in making their pricing decisions? If you decide the the Prisoner's Dilemma does apply then explain why you think it applies. Hint: use terms like implicit (silent) collusion, or, explicit (open) collusion; collective or individual market power; collusion or cooperation; positive profit margins or normal profit margins, etc. Please see the textbook for a complete Prisoner's Dilemma discussion.
Transcribed Image Text:This discussion question has three parts, a, b, and, c. Be sure to answer all three parts: Read the Andrew Sorkin article, "As Oil Prices Fall, Airfares Still Stay High", on a preceding page. Prompts: a.) Describe the characteristics of the market structure of the airline industry applying specific terms to explain the market characteristics of this industry and explain how strategic interdependence specifically applies to the airline industry's price setting abilities or practices described in the article. b.) Using game theory, describe what you think a Nash equilibrium on setting price would look like among the players in the airline industry described in the article, and c.) Now consider the Prisoner's Dilemma applied to this situation. Does the Prisoner's Dilemma apply to the four major airlines? (Your explanation must start out with a "yes" or "no" answer.) If you decide the Prisoner's Dilemma doesn't apply, explain how the four major airlines successfully manage to avoid the inferior outcome of the Prisoner's Dilemma in making their pricing decisions? If you decide the the Prisoner's Dilemma does apply then explain why you think it applies. Hint: use terms like implicit (silent) collusion, or, explicit (open) collusion; collective or individual market power; collusion or cooperation; positive profit margins or normal profit margins, etc. Please see the textbook for a complete Prisoner's Dilemma discussion.
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