It is harder to sustain a collusive agreement in an infinitely repeated game if:
I. The present value of the stream of payoffs from cooperating is lower.
II. The discount rate is higher.
III. The present value of violating the agreement is lower.
Which of the following is correct?
A) I only.
B) II only.
C) III only.
D) I and II only.
E) II and III only.

Question

Quizplus · Accepted Answer

In an infinitely repeated game, sustaining a collusive agreement becomes harder if the present value of the stream of payoffs from cooperating is lower (I) because participants have less incentive to stick to the agreement. Similarly, if the discount rate is higher (II), future payoffs are valued less, making immediate defection more attractive. The present value of violating the agreement being lower (III) would actually make sustaining the agreement easier, not harder, as there's less incentive to defect.

It Is Harder to Sustain a Collusive Agreement in an Infinitely