If two firms that form a cartel agreement are in a prisoner's dilemma game, then
A)both firms will have an incentive to break the agreement.
B)only one firm will have an incentive to break the agreement.
C)both firms will be worse off if they hold to the agreement than if they break it.
D)both firms will have an incentive to hold to the agreement.

Question

Quizplus · Accepted Answer

In a prisoner's dilemma game, each player has a dominant strategy to defect. This means that both firms will have an incentive to break the agreement and act in their own best interest, leading to a situation where both firms are worse off than if they had cooperated and held to the agreement.

If Two Firms That Form a Cartel Agreement Are in a Prisoner's