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Firms Faced with Prisoners' Dilemma Can Always Make More Profits

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Essay

Firms faced with prisoners' dilemma can always make more profits by engaging in opportunistic behavior. Why is this type of behavior NOT commonly found even in oligopolistic markets?


Definitions:

Operating Leverage

A metric assessing the impact of increased sales on operational earnings, revealing the balance between a firm's fixed and variable expenses.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses to show the business's core profitability.

DOL

Department of Labor, a U.S. government department responsible for occupational safety, wage standards, unemployment insurance benefits, re-employment services, and some economic statistics.

Financial Leverage

The use of debt to increase the potential return of an investment.

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