A game theory model offers antitrust regulators a new screening method for collusive behavior.
In a prisoner’s dilemma — the classic theoretical game for understanding cooperation among self-interested parties — two parties benefit by cooperating, but any one party gets an even better outcome by defecting, provided the other doesn’t defect. So if the parties interact only once, each betrays the other, and both suffer negative consequences as a result. But if the parties interact on a repeated basis, the long-term gains from cooperation may be enough to discourage them from cheating.
Standard game theory models assume the parties don’t need to communicate because they can observe each other’s behavior and put themselves in each other’s shoes. But what happens in a situation where each has private information?
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