Given an infinitely repeated duopoly game, a particular punishment strategy, imposed when a collusive agreement is breached, is more likely to be successful:
A)the lower the rate of interest.
B)the lower the gain from cheating.
C)the less severe the punishment.
D)the more difficult it is to detect cheating.

Question

Quizplus · Accepted Answer

If the gain from cheating is lower, the incentive to cheat is reduced, making it more likely for the collusive agreement to hold. This reduces the need for punishment, making the punishment strategy more effective. Lower interest rates (A) may reduce the cost of cheating but do not necessarily address the underlying incentive to cheat. Less severe punishment (C) may not deter cheating enough, and if it is too difficult to detect cheating (D), the punishment may not be able to be enforced effectively.

Given an Infinitely Repeated Duopoly Game, a Particular Punishment Strategy