Angela and Maggie stole a car and have been caught by the police. Detective Lenny Briscoe does not have sufficient evidence to convict them of auto theft. He ushers Angela and Maggie into separate interview rooms and offers each a $1,000 reward for a confession if the other suspect does not confess. Each suspect knows that if neither confesses, they will be let off. If only one confesses, they will get the $1,000 reward, while the other will be jailed for one year. If both confess, each will be jailed for one year.

a. Construct a game in strategic form to analyze the choices of Angela and Maggie between confessing and not confessing.

b. Identify the equilibrium/equilibria.

c. Compare this situation to the gasoline station price war in Table 9.1.

Table 9.1 Gasoline stations: price war Saturn Maintain price Cut price Jupiter Maintain price J: 1,000 J: 700 S: 1,000 5: 1,300 Cut price J: 1,300 J: 800 S: 700 5: 800