2. Alpha and Beta, two oligopoly rivals in a duopoly market, choose prices of their products on the first day of the month. The following payoff table shows their monthly payoffs resulting from the pricing decisions they make.

Alpha's Price

Beta's Price

Low Medium

Low A $200, $300 B $50, $350

Medium C $300, $150 D $75, $200

Payoffs in thousands of dollars per month

• Is the pricing decision facing Alpha and Beta a Prisoner's Dilemma? Why or why not?
• What is the cooperative outcome? What is the non-cooperative outcome?
• Which cells represent cheating in the pricing decision? Explain.
• If Alpha and Beta make their pricing decision just one time, will they choose the cooperative outcome? Why or why not?
• Can Alpha make a credible threat to punish Beta with a retaliatory price cut? Can Beta also adopt a similar retaliatory price cut?