In Figure 13.2, point C makes both Arrow and Bravo more profitable. Getting to point C requires the airlines to cooperate: Arrow agrees to charge $230 per round-trip ticket and Bravo agrees to charge $235 per round-trip ticket.a. At these prices, how much profit does each airline earn? Does the higher price increase Arrow?s profit? Does the higher price increase Bravo?s profit?b. Suppose Arrow cheats by unilaterally lowering its price to $229, while Bravo honors the agreement and continues to charge $235. Calculate Arrow?s profit when it cheats. Does cheating increase Arrow?s profit?c. Suppose Bravo cheats by unilaterally lowering its price to $234, while Arrow honors the agreement and continues to charge $230. Calculate Bravo?s profit when it cheats. Does cheating increase Bravo?s profit?

Figure 13.2

Transcribed Image Text:

PA BRB C BRA 230 N 212 184 R 160 PB 218 235 100 165 Bravo Airways's price Arrow Airlines's price