Final answer:
The statement that building 'trustability' inevitably leads to giving away too much product is false. Trust between firms can be strategic, and while it can lead to competitive behaviors to maintain profitability, it also has the potential to exploit trust for greater profits or be affected by external competition.
Step-by-step explanation:
The question of whether companies that build 'trustability' often find themselves giving away too much product hence hurting profitability is not necessarily true. Strategic trust between firms can lead to cooperative behaviors that benefit both parties. In the scenario given, if Firm A suspects Firm B will increase output in violation of an agreement, Firm A is incentivized to do the same to maintain competitive profitability, anticipating a profit of $400 rather than $200. However, if Firm A trusts that Firm B will not cheat, it could lead to a situation where Firm A decides to exploit the trust by increasing output to gain higher profits of $1,500. In contrast, the profitability could be reduced considering the competition by better or cheaper products which can harm a business's bottom line and affect employees' income as well.