When cost and demand are stable over time in an industry, repetition of Prisoners' Dilemma situations
A) can yield cooperative outcomes because firms can explicitly collude to set prices.
B) can yield cooperative outcomes even when firms do not explicitly collude to set prices.
C) cooperative or noncooperative outcomes may occur, but cooperation is harder than when the market is unstable.
D) will tend to yield noncooperative outcomes.
E) will always yield noncooperative outcomes.

Question

Quizplus · Accepted Answer

When cost and demand are stable over time, repetition of Prisoners' Dilemma situations can lead to cooperative outcomes even without explicit collusion, as firms learn that cooperation leads to higher profits in the long run. This is known as a "tit-for-tat" strategy, where firms reciprocate the other's previous action. Therefore, choice B is the best answer.

When Cost and Demand Are Stable Over Time in an Industry