military strategy.

The prisoner’s dilemma is a scenario in which the gains from cooperation are larger than the rewards from

pursuing self-interest. It applies well to oligopoly. (Note that the term "prisoner" is not typically an accurate

term for someone who has recently been arrested, but we will use the term here, since this scenario is widely

used and referenced in economic, business, and social contexts.) The story behind the prisoner’s dilemma

goes like this:

Two co-conspirators are arrested. When they are taken to the police station, they refuse to say
248 10 • Monopolistic Competition and Oligopoly

anything and are put in separate interrogation rooms. Eventually, a police officer enters the room

where Prisoner A is being held and says: “You know what? Your partner in the other room is

confessing. Your partner is going to get a light prison sentence of just one year, and because you’re
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