Explain how the prisoners' dilemma can be used to examine pricing strategies in an oligopoly

What will be an ideal response?

The players can choose either a high-price strategy or a low-price strategy. If both choose high, they each make substantial profits. If both choose low, they each make smaller profits. If one chooses high and the other low, the one who chooses high makes low profits and the other makes the most profits possible. Each firm will choose low because that is their dominant strategy—regardless of what the other firm does, a firm has higher profits if it chooses the low-price strategy. When both choose low, though, their profits are less than they could have been.