Final answer:
Firms in an oligopoly experience a dilemma similar to those in a cartel as they balance cooperation for joint benefit with the individual temptation to produce more and undercut prices, which can lead to reduced profits for all, resembling the Prisoner's Dilemma.
Step-by-step explanation:
Firms in an oligopoly are in the same dilemma as those in a cartel because each company faces the temptation to increase output and undercut competitors, which can lead to a breakdown in the agreed-upon production and pricing, resulting in a scenario where all firms earn lower profits. Essentially, this dilemma is akin to the Prisoner's Dilemma, where mutual cooperation would yield the best overall result, but individual incentives lead to a trust issue and potential mutual defection, harming all parties involved. This situation is exacerbated by the fact that explicit collusion to fix prices or production levels is illegal in many jurisdictions, making such agreements unstable.