Many situations in which two players meet can be thought of as "dilemmas." Dilemmas are games in which both players would be better off if they could abondon their dominant strategy and choose a more cooperative approach. The dilemma is that this is very unlikely to happen if the game is played only once.
A well known example, usually taught as the introduction to game theory, is the prisoners' dilemma. Even though it's not a stricly economic application, we will use the prisoners' dilemma as our introduction to this section. We shall also see that it is easy to imagine two firms facing one another in what can only be called the oligopolists' dilemma.
The prisoners' dilemma goes something like this: An alarm goes off at a bank. Police discover that the bank has been robbed and shortly after they arrest two people found in the vicinity. They have no physical evidence tying either of the individuals to the robbery...
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