1. What is the Prisoner's dilemma problem in pricing?Explain. What strategies can a firm undertake to avoid this prisoner's dilemma problem?

b. We looked at the "team member's dilemma" which is an example of a prisoner's dilemma in a single period game but may lead to cooperation 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 $10,000 for each. If they both give low effort their payoff is $2000 each. If one gives low effort and the other high effort, the one who gives low effort gets $11000 and the one who gives high effort gets 0.

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.Explain what this probability means.