You operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper.If you each charge a low price,you each earn zero profits.If you each charge a high price,you each earn profits of $3.If you charge different prices,the one charging the higher price loses $5 and the one charging the lower price makes $5.
a.Find the Nash equilibrium for a one-shot version of this game.
b.Now suppose the game is infinitely repeated.If the interest rate is 10 percent,can you do better than you could in a one-shot play of the game?

c.Explain how "history" affects the ability of firms in this game to achieve an outcome superior to that of the one-shot version of the game.

Question

You operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper.If you each charge a low price,you each earn zero profits.If you each charge a high price,you each earn profits of $3.If you charge different prices,the one charging the higher price loses $5 and the one charging the lower price makes $5.
a.Find the Nash equilibrium for a one-shot version of this game.
b.Now suppose the game is infinitely repeated.If the interest rate is 10 percent,can you do better than you could in a one-shot play of the game?
 
c.Explain how "history" affects the ability of firms in this game to achieve an outcome superior to that of the one-shot version of the game.

Quizplus · Accepted Answer

The Answer of You operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper.If you each charge a low price,you each earn zero profits.If you each charge a high price,you each earn profits of $3.If you charge different prices,the one charging the higher price loses $5 and the one charging the lower price makes $5.
a.Find the Nash equilibrium for a one-shot version of this game.
b.Now suppose the game is infinitely repeated.If the interest rate is 10 percent,can you do better than you could in a one-shot play of the game?
 
c.Explain how "history" affects the ability of firms in this game to achieve an outcome superior to that of the one-shot version of the game.

You Operate in a Duopoly in Which You and a Rival