Games Theory and Prisoner’s Dimemma

Games theory
A model of optimality taking into consideration not only benefits less costs, but also the interaction between participants. Used to analyse the oligopolists’ behaviour

Prisoner’s Dimemma
One firm cut prices, other follows and therefore overall price decreases. The prisoners' dilemma illustrates a situation in which individuals arrive at a non-optimal solution, due to a lack of cooperation and trust. A similar situation occurs with oligopolies. If firms within an oligopolistic industry have cooperation and trust with each other, then they can theoretically maximize industry profits by setting a monopolistic price. Firms would then have to figure out how to fairly divide up the profits.