If both restaurants do not clean, each will earn $8,000; alternatively, if they both hire workers to clean, each will earn only $5,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $12,000, and the other restaurant will make only $3,000.
5.3. When the oligopolists (duopolists) expect to compete with each other over an extended period of time, each restaurant chooses to be "nice" and follow a strategy that raises the profits of the other restaurant, expecting the other restaurant to return the favor.
This is an example of:
A. Perfect competition
B. Tacit collusion
C. A non-cooperative Nash equilibrium
D. A prisoners' dilemma
This question was asked on May 06, 2010 and answered on May 06, 2010.
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