Collective Action Problem Essay Example for Free

Collective Action Problem EssayProblem Statement Competitors Coca- cola and Pepsi-cola have to decide whether or not to offer displace pricing.Matrix-Pepsi colaCoca- colaPricing StrategyDiscount priceRegular priceDiscount price$4b, $2b$8b, $1bRegular price$2b, $5b$6b, $4b* b bureau billionDescription Both companies can choose one outcome by offering a deduction price or a perpetual 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 mending prices while Pepsi- low-down charges discount prices. Similarly, for Pepsi- Cola the worst case scenario is $1 billion.Solution A dilemma is involved because each party 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 pric e as they would have earned $6 billion (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 down for profits of $4 billion and $2 billion for Coca-cola and Pepsi-Cola respectively.