Firm X is deciding whether to cooperate with its competitor so that their combined profit is $4000 a month ($2000 each). It worked out that, if it refused to co-operate, its own profit would be $2800 a month as long as it retained all its customers. Yet if the competitor cut X’s price and won some of X’s customers, X’s profit would fall to $1200. It does not know what strategy the competitor will choose. What term is used to describe the situation faced by the firm?
- Amonopoly profit maximisation
- Bprincipal agent problem
- Cprisoner’s dilemma
- Dsatisficing