Question

How does the scenario of the prisoners dilemma apply to oligopolies? Explain?

Answer 1

Ologopoly is A market structure in which there are few firms producing a product. when there are few firms , they may collude to set a price or output level for the market in order to maximize industry profit. The prisoner delemma is a type of game that illustrates why cooperation is difficult to maintain for oligopolist even when it is mutually beneifical. In the game the dominant strategybof each actor is to defect however acting in self intetest leads to sub optimal collective outcome. In this game two members of criminal gang are arrested and imprisoned. The prisoners are separated and left to contemplate their options. The result of the game is that both prisoners persue individual logic and betray when they would have collectively gotten a bettervoutcome if they had both cooperated.