UPS and FedEx both struggle to deliver the surge of packages they receive during the December holiday season. According to an article in the Wall Street Journal, in 2014, both firms considered charging firms such as Amazon rates that would be 10 percent higher for packages delivered during the week before Christmas. Such higher rates would likely have increased the profits of both firms. Neither UPS nor FedEx raised rates during the holiday season of 2014, but both firms did raise them during the 2016 holiday season. Use game theory to explain why in 2014 neither firm raised rates during the holiday season, but two years later both firms did. Sources: Laura Stevens, "UPS, FedEx Got Back on Time This Holiday," Wall Street Journal, December 29, 2014; and Paul Ziobro, "UPS Earnings: What to Watch," Wall Street Journal, January 30, 2017. In 2014 neither firm raised rates during the holiday season because they were

A prisoner's dilemma refers to a business situation where both companies would win higher profits if they both decided to raise their prices during the 2014 holiday season, but they both were afraid that the other company would not raise their prices, therefore the company that did raise their price would end up losing money. As a consequence of their fears, both companies decided to make the worst possible decision which was not increasing their prices.