Why can't two firms in a Prisoners' Dilemma enforce a better outcome that has higher payoffs?
A) Under an outcome with higher payoffs, the outcome is not a Nash equilibrium and each firm has an incentive to change their actions.
B) Barriers to entry
C) Barriers to exit
D) The Nash equilibrium in a Prisoners' Dilemma has the highest possible payoffs for both firms.

Question

Quizplus · Accepted Answer

In a Prisoners' Dilemma, the Nash equilibrium is the outcome where both firms choose the dominant strategy and have the highest payoffs. If both firms were to try and enforce a different outcome with higher payoffs, it would not be a Nash equilibrium as each firm would have an incentive to change their actions to achieve even higher payoffs. Therefore, it is impossible for two firms in a Prisoners' Dilemma to enforce a better outcome with higher payoffs.

Why Can't Two Firms in a Prisoners' Dilemma Enforce a Better