Question

In 2014 neither firm raised rates during the holiday season because they were A. at the equilibrium of an infinitely repeated game. B. colluding to maximize profits. C. cooperating to increase their joint profits. D. competing in a​ prisoner's dilemma.

Answer 1

The correct answer is D. competing in a​ prisoner's dilemma.

Step-by-step explanation:

The prisoner's dilemma is a fundamental problem in game theory that shows that two people may not cooperate even if it goes against the interest of both.

In the iterated prisoner's dilemma, cooperation can be obtained as a result of balance. Here it is played repeatedly, so when the game is repeated, each player is offered the opportunity to punish the other player for non-cooperation in previous games. Thus, the incentive to defraud can be overcome by the threat of punishment, which leads to a cooperative outcome.