If this game is repeated and the firms can somehow come to an agreeement to collude and charge High prices, Firm 1 will earn payoffs of 14 in each period and Firm 2 will earn payoffs of 16.

   However, if Firm 1 believes Firm 2 will continue co collude on High prices Firm 1 can cheat on the agreement, charge the Low price and earn a payoff of 19 in the next period. In the same way Firm 2 will be tempted to cheat and charge the Low price to earn a payoff of 20.

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