An industry contains two firms. Firm X must make a choice. It may either operate on its own or cooperate with its competitor. If it operates on its own, its profit might be $900 a week, but depending on the competitor’s action it might instead be only $400 a week. If it cooperates with its competitor, the combined profit of both firms would be $1400, which is $700 each. It has no information about what policy the competitor will follow. Which concept is used to describe this situation?
- Acontestable market
- Bkinked demand curve
- Cprincipal agent problem
- Dprisoner’s dilemma