Economic and Game Theory

"Inside every small problem is a large problem struggling to get out."  
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If this game is only played once there are two pure strategy NE: (C,N) and (N,C) and mixed strategy NE: (1/2C+1/2N, 1/2C+1/2N). If this game is played infinitely there may be much more possible outcomes. For example (C,C) may be an outcome in equilibrium. How? Imaging that the players play (C,C) from the beginning, if one deviates, he/she is punished by reverting to the static NE that is worse for him/her. Then, in analyzing if deviating or not, the players should do the following calculation: U(C)=3 and U(N)=4(1d)+d where d is the discount factor. U(C)>U(N) if d>1/3. Then, if d is greater or equal to 1/3, playing (C,C) in every period is an equilibrium outcome. A good reference for repeated games theory is "Game
Theory", Ch.5, Fudenberg and
