If two players in an oligopoly game enter into an agreement whereby one player makes a grim trigger, the other player will honor the agreement only if its (i.e.the other's) annual discount rate is high.

Question

Quizplus · Accepted Answer

A high annual discount rate would make future profits less valuable to the player, making them less likely to honor a grim trigger agreement, which relies on the value of future cooperation outweighing the short-term gains from defection.

If Two Players in an Oligopoly Game Enter into an Agreement