alleryStart learning →The prisoner's dilemma applies to oligopoly because firms face a choice between:
AHiring and firing staff
BExporting or importing
CCooperating, self-interest
DProducing, closing down
Answer & Solution
Correct answer: C. Cooperating, self-interest
1. The dilemma is defined by the payoff structure rather than by any particular industry.
2. The prisoner's dilemma is a scenario in which the gains from cooperation are larger than the rewards from pursuing self-interest.
3. Oligopolists weigh the pros and cons of competition versus collusion at a given point in time.
4. Cooperation here means holding to the collusive output, and self-interest means undercutting.
5. That maps directly onto the dilemma's two strategies.
_Source: OpenStax Principles of Microeconomics for AP(R) Courses 2e (CC BY 4.0), Ch 10 'Monopolistic Competition and Oligopoly', sections 10.1-10.2_
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