If firms adopt a strategy that triggers a permanent punishment, the result in an indefinitely repeated game is
A)undefined.
B)the noncooperative Nash equilibrium.
C)the collusive Nash equilibrium.
D)economically inefficient.

Question

Quizplus · Accepted Answer

The collusive Nash equilibrium is the only outcome that is sustainable in an indefinitely repeated game if firms adopt a strategy that triggers a permanent punishment. This is because any other outcome would be unstable, as firms would have an incentive to deviate from the collusive strategy and earn a higher payoff.

If Firms Adopt a Strategy That Triggers a Permanent Punishment