Summary 391- In the off-diagonal entries in Table 9.2, both the low-price firm and the
high-price firm earn $8 million in profit. This change completely reverses
the firms’ incentives. Regardless of what action the other takes, each
firm’s profit-maximizing strategy is to set a highprice. (Comparing
possible profits, 10 is greater than 8, and 8 is greater than 7.) Strong
brand allegiance removes the incentive to cut price. - The minimum sentencing law changes the off-diagonal payoffs in Table
9.3. Now a unilateral confession brings a three-year term (not a one-year
term). It is in each prisoner’s best interest to stay mum, provided he
expects his partner to do likewise (two years is better than three years).
By limiting the scope of plea bargaining, the law has impeded the
prosecutor’s ability to secure longer prison terms.
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