a. We looked at the team members dilemma which is an example of a prisoners dilemma in a single period game but may lead to a high effort outcome in a multi-period game.

Consider a one period game where two team members have two strategies to give high effort or low effort. If both give high effort the payoff is $12,000 for each. If they both give low effort their payoff is $8,000 each. If one gives low effort and the other high effort, the one who gives low effort gets $16,000 and the one who gives high effort gets 3000.

Write out a multi period payoff matrix by using the technique used in class. Assume that one who starts with low effort continue with low effort and the others use a tit for tat strategy.

Compute a break-even probability of future interaction that would induce cooperation and explain what this probability means.

Explain how the payoffs would change for the breakeven probability to go towards zero.

b. Explain the role of excess capacity and product differentiation in avoiding the prisoners dilemma problem in pricing. Please refer to the reading Dynamics for price competition to support your answer.

a. We looked at the team members dilemma which is an example of a prisoners dilemma in a single period game but may lead to a high effort outcome in a multi-period game.

Consider a one period game where two team members have two strategies to give high effort or low effort. If both give high effort the payoff is $12,000 for each. If they both give low effort their payoff is $8,000 each. If one gives low effort and the other high effort, the one who gives low effort gets $16,000 and the one who gives high effort gets 3000.

Write out a multi period payoff matrix by using the technique used in class. Assume that one who starts with low effort continue with low effort and the others use a tit for tat strategy.

Compute a break-even probability of future interaction that would induce cooperation and explain what this probability means.

Explain how the payoffs would change for the breakeven probability to go towards zero.

b. Explain the role of excess capacity and product differentiation in avoiding the prisoners dilemma problem in pricing. Please refer to the reading Dynamics for price competition to support your answer.