Suppose That You Are Playing an Infinitely Repeated Game

question 54

Essay

Suppose that you are playing an infinitely repeated game. You and your opponent agree to restrict output each period to maximize discounted profit. For each period, you and your opponent have to touch a button on a computer screen that selects the level of output, namely, restricted or unrestricted output. Once the button is touched, the output is locked in for the period and cannot be changed. If your opponent has a shaky hand, would you rather use a grim trigger strategy or a tit-for-tat strategy?