The noncooperative equilibrium of a prisoners' dilemma game can be avoided if the game is played repeatedly and firms engage in strategic behaviour.

Question

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If the game is played repeatedly, the firms have the opportunity to establish a reputation for cooperation and can face punishment for defecting in subsequent rounds. This can lead to a cooperative equilibrium in the long run.

The Noncooperative Equilibrium of a Prisoners' Dilemma Game Can Be