Question

Consider an example of the prisoner's dema where 2 forms are making sealed bids on a way construction contract and each firm is allowed to bid her 100 million or 5120 million. W both firms bid the same price, the job is shared equally and each team half the value of the bid Otherwise the west bidder wins the contract and receives the full value of is bid (and the other bidder cams zero) The cooperative outcome in this sition is OA both fem bid 560 O bothms bid 5120 million Ochothers bid 550 million OD both firms bid 100 milion OE. one fimm bis 5100 milion, the other fem bids 5120 milion

Answer 1

In the case of prisoner’s dilemma, the firms would like to use their dominant strategies of bidding low. But in prisoner’s dilemma, if both the firms cooperate and choose a strategy of bidding high, then both the firms would end up having higher profits. So, the cooperative outcome in this situation is that both the firms bid $120 million and then they both will get 50% of the bids and both will have a profit of $60 millions. So, option B is the correct answer.

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