oligopoly and game theory

Holder’s name
Instructor’s name
Economics
11th November 2018
Oligopoly and game theory
Nick Ibrahim
split steal
split £6,800 £6,800 £0. £13,600
steal £13,600 £0 £0, £0
The players have a dominant strategy, it is (split, split)
The players have a Nash equilibrium, it is (split, split)
They have a situation where the equilibrium is not Pareto-efficient.” These kinds of games are referred to as the prisoner’s dilemma. The solution is confess, confess.”CITATION Placeholder1 l 1033 (Poundstone)The outcome of the game is that there is a Nash equilibrium and a dominant strategy. which is (split, split). The outcome isn’t what I would have expected given that both parties had a chance of walking out with £13,600. In this game cheating was optimal but the players could not cooperate, even though cooperation would be socially optimal.
The players are however made to cooperate by appointing an authoritative representative body to keep a check and penalize. This strategy was very effective because they both walked out with £6,800 even though it’s not Pareto efficient. This decision was better than the other payoffs because it would mean one of them would lose or both would lose. CITATION Mor80 l 1033 (Morgenstern and Neuman)No, I understood the theory.

References
BIBLIOGRAPHY Morgenstern, Oskar, and John Von Neuman. Theory of Games and Economic Behavior. Princeton: Princeton university press, 1980. print.
Poundstone, William. Prisoner’s Dilemma. San Francisco: Anchor, 1993. print.