CHAPTER 16OLIGOPOLY365CASE STUDYTHE PRISONERS’ DILEMMA TOURNAMENTImagine 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 playnot once but many times. Your score at the end of the game is the total numberof years in jail. You would like to make this score as small as possible. Whatstrategy would you play? Would you begin by confessing or remaining silent?them to an equilibrium in which each produces 40 gallons. Figure 16-7 shows thegame they play. Producing 40 gallons is a dominant strategy for each player in thisgame.Imagine that Jack and Jill try to form a cartel. To maximize total profit, theywould agree to the cooperative outcome in which each produces 30 gallons. Yet, ifJack and Jill are to play this game only once, neither has any incentive to live up tothis agreement. Self-interest drives each of them to renege and produce 40 gallons.
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