Collective Action Problem Essay Example for Free

Collective Action Problem EssayProblem Statement Competitors Coca- cola and Pepsi-cola produce to decide whether or not to offer discount pricing.Matrix-Pepsi colaCoca- colaPricing dodgeDiscount priceRegular priceDiscount price$4b, $2b$8b, $1bRegular price$2b, $5b$6b, $4b* b manner billionDescription Both companies can choose one outcome by offering a discount price or a unbroken price. The payoff for each firm depends upon the pricing strategies of two firms. For coca- cola the worst case scenario is $2 billion payoff when it offers regular prices while Pepsi- dumbbell charges discount prices. Similarly, for Pepsi- Cola the worst case scenario is $1 billion.Solution A dilemma is involved because each party would same(p) to have maximum benefits by offering the discount and hoping that the other doesnt. The only secure means both companies have of avoiding meager moolah is to offer discount prices. The ideal scenario would have been when both were offering regular pric e as they would have earned $6 billion (Coca- cola) and $4 billion (Pepsi-Cola). But, its ambitious to trust each other and thus, they both go for the conservative strategy and settle down for profits of $4 billion and $2 billion for Coca-cola and Pepsi-Cola respectively.