One-Time Games and the Prisoner's Dilemma

This situation is not a prisoner’s dilemma

If Walmart lowers its price, Target should keep its prices high

If Target lowers its price and Walmart does not, Target will earn $20 million economic profit

Both Walmart and Target would jointly be better off if they could each keep their prices high

A Nash equilibrium: both Walmart and Target keep prices high

A Nash equilibrium: both Walmart and Target lower prices

A Nash equilibrium: Target keeps prices high and Walmart lowers prices

No Nash equilibrium

Each firm has an incentive to decrease its own output

Each firm has an incentive to raise its price

Each firm has an incentive to expand its output

Each firm’s marginal cost exceeds the price that the cartel sets