Microeconomics 20th Edition by Campbell McConnell, Stanley Brue,Sean Flynn

Exercise 2

Refer to the payoff matrix in discussion question 8 at the end of this chapter. First, assume this is a one-time game. Explain how the $60/$57 outcome might be achieved through a credible threat. Next, assume this is a repeated game (rather than a one-time game) and that the interaction between the two firms occurs indefinitely. Why might collusion with a credible threat not be necessary to achieve the $60/$57 outcome