-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If this game is infinitely repeated, below what discount rate will cooperation become unstable?
A) 3.33 percent.
B) 5 percent.
C) 6.67 percent.
D) 7.25 percent.
E) 12.5 percent.

Question

-Consider the pricing game depicted in Figure 4.1 in which the payoffs are in millions of dollars. If this game is infinitely repeated, below what discount rate will cooperation become unstable?
A) 3.33 percent. 
B) 5 percent. 
C) 6.67 percent. 
D) 7.25 percent. 
E) 12.5 percent.

Quizplus · Accepted Answer

In an infinitely repeated game, cooperation becomes unstable when the discount rate is below the critical value where the present value of future cooperation is less than the immediate gain from defection. The critical discount rate is calculated using the formula for the present value of an infinite series. In this context, 6.67 percent is the threshold below which cooperation becomes unstable.

-Consider the Pricing Game Depicted in Figure 4