Suggested solution: The customers (the third parties in this instance) of competing companies engaged in a game with a prisoner’s dilemma might benefit from lower prices for both companies’ goods and services as the companies are likely to engage in vigorous price competition. (Answers may vary.)

Suggested solution: Assume two companies (A and B) are engaged in a repeated game, and both are making decisions that result in the highest collective profit. Company A decides on an action designed to maximize its profit at the expense of company B. The next time the game is played, company B can decide to match company A’s action which results in a prisoner’s dilemma outcome, and denies company A the benefits of its noncooperative strategy, a tit-for-tat strategy. When company B does this, it is signaling to company A that it won’t allow company A to gain at its expense. Hence, company A’s best strategy when the game is played the next time is to cooperate and allow for the maximization of joint profits. (Answers may vary.)

Suggested solution: Game theory is the study of how businesses and individuals interact with one another to achieve their goals. It helps us understand and predict behavior by participants in some economic decisions. Hence, it is an important tool for economists. (Answers may vary.)