This preview shows page 1. Sign up to view the full content.
CHAPTER 16
OLIGOPOLY
365
CASE STUDY
THE PRISONERS’ DILEMMA TOURNAMENT
Imagine that you are playing a game of prisoners’ dilemma with a person being
“questioned” in a separate room. Moreover, imagine that you are going to play
not once but many times. Your score at the end of the game is the total number
of years in jail. You would like to make this score as small as possible. What
strategy would you play? Would you begin by confessing or remaining silent?
them to an equilibrium in which each produces 40 gallons. Figure 167 shows the
game they play. Producing 40 gallons is a dominant strategy for each player in this
game.
Imagine that Jack and Jill try to form a cartel. To maximize total profit, they
would agree to the cooperative outcome in which each produces 30 gallons. Yet, if
Jack and Jill are to play this game only once, neither has any incentive to live up to
this agreement. Selfinterest drives each of them to renege and produce 40 gallons.
Now suppose that Jack and Jill know that they will play the same game every
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.
 Spring '10
 abijian

Click to edit the document details