Suppose Firm 1 is worried that Firm 2 will "cheat" on the agreement and change to Low in order to earn one time payoffs of 20. It could threaten that if Firm 2 ever did this Firm 1 would switch to Low forever. Should Firm 2 believe this threat?

   Whether such a threat is believeable or credible depends on too many factors to go into here, but the threat of swift "punishment" (in the form of low prices) even if temporary, may help maintain cooperative agreements. We don't have a certain prediction for what will happen in this game as it is repeated. The best we can say is that, the more factors which facilitate collusion, the more likely the collusive outcome of High, High.

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