Suppose two firms, Allstom from France, and Bombardier from Canada, are bidding on a contract to replace train cars for the subway system in Mexico City. If they bid the same amount, they share the contract-otherwise, the low bid wins. The figure below shows the payoff matrix for this contest.
FIGURE 11-6
Refer to Figure 11-6. If Allstom and Bombardier co-operated with each other when bidding on the contract, then the likely outcome is that
◦ Bombardier bids $50 million, and earns profit of $0, while Allstom bids $35 million and earns profit of $5 million.
◦ each firm bids $35 million, and each earns profit of $2.5 million.
◦ Bombardier bids $35 million, and earns profit of $5 million, while Allstom bids $50 million and earns profit of $0.
◦ each firm bids $50 million, and each earns profit of $10 million.
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