Collective Action Problem Essay

Problem Statement Competitors Coca- grass and Pepsi-cola have to decide whether or not to offer deductive reasoning price.Matrix-Pepsi colaCoca- colaprice StrategyDiscount priceRegular priceDiscount price$4b, $2b$8b, $1bRegular price$2b, $5b$6b, $4b* b delegacy billionDescription Both companies can choose one outcome by offer a discount price or a regular price. The payoff for each firm depends upon the pricing strategies of both firms. For coca- cola the worst case scenario is $2 billion payoff when it offers regular prices while Pepsi-Cola charges discount prices. Similarly, for Pepsi- Cola the worst case scenario is $1 billion.Solution A dilemma is involved because each company would like to have maximum benefits by offering the discount and hoping that the other doesnt. The only secure means both companies have of avoiding meager profits is to offer discount prices. The ideal scenario would have been when both were offering regular price as they would have earned $6 bill ion (Coca- cola) and $4 billion (Pepsi-Cola). But, its difficult to trust each other and thus, they both go for the conservative strategy and settle vote out for profits of $4 billion and $2 billion for Coca-cola and Pepsi-Cola respectively.