Hi all, What is the role of prisoners dilemma in oligopoly? As i understand that the players should collude (don’t confess)? Thanks for your thought. S
They should, but they won’t.
KJH Wrote: ------------------------------------------------------- > They should, but they won’t. it is better to cheat, book says. oligopoly is where a few firms control the market.
The prisoner dilemma proves that if firms in a oligopoly colludes, they can earn the same amount(thru controlling prices/supply). However, it is hard to collude because he cannot communicate with the other partner and make sure both of them are acting for the common good (as if they were put into two separate prison cells and cannot communicate). Therefore, if you don’t know your partner is not cheating, you have to cheat to make sure you maximize your profit.
Ok, prisoner dalemma is explained with the theory of game and nash equilibrium. What the prisoner dilemma show, is that in an ologopoly, if two firms collude, this will not held for a long time as both will try to break the “collusion rule” in order to gain on the expeses of the other. As a result, the prisoner dilemma,show that the “market equilibrim” in the case of collusion is not the most efficient for both the companies.