Asked by Aneri Patel on Jun 09, 2024
Verified
When cost and demand are stable over time in an industry, repetition of Prisoners' Dilemma situations:
A) can yield cooperative outcomes because firms can explicitly collude to set prices.
B) can yield cooperative outcomes even when firms do not explicitly collude to set prices.
C) will tend to yield noncooperative outcomes.
D) will always yield noncooperative outcomes.
E) Cooperative or noncooperative outcomes may occur, but cooperation is harder than when the market is unstable.
Prisoners' Dilemma Situations
A scenario in game theory where individuals acting in their own self-interest produce a worse outcome for the group than if they had cooperated.
Cooperative Outcomes
Results of collaborative efforts among various parties that are mutually beneficial and aim towards shared goals or interests.
- Recognize how factors like market conditions external to the game affect strategic decision-making.
- Apprehend the effects of persistent interactions on strategic approaches and end results within game dynamics.
Verified Answer
HA
Hailey AndrewsJun 13, 2024
Final Answer :
B
Explanation :
When cost and demand are stable over time in an industry, repetition of Prisoners' Dilemma situations can lead to firms developing a reputation for cooperation, which can lead to cooperative outcomes even when there is no explicit collusion to set prices. This is known as the "tit-for-tat" strategy, where firms match the other's behavior in each round. As a result, firms can achieve profitable outcomes by cooperating rather than defecting. However, it is important to note that this outcome is not guaranteed and depends on various factors, such as the number of firms in the industry and the degree of transparency.
Learning Objectives
- Recognize how factors like market conditions external to the game affect strategic decision-making.
- Apprehend the effects of persistent interactions on strategic approaches and end results within game dynamics.
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