Consider a situation where two identical firms are simultaneously deciding whether to price high or price...

 

Transcribed Image Text:

Consider a situation where two identical firms are simultaneously deciding whether to price high or price low. If both firms price high, they both receive half of the market's profits,. If one firm prices high, while the other firm prices low, the low pricing firm receives all of the market's profits, 7, while the high pricing firm receives 0 profits. If both firms price low, they both receive 0 profits. (a) Depict the normal form representation of this simultaneous move game. Find all psNE. Intinin oly (b) Suppose now that the firms decided to collude to charge a high price. For what minimal discount factor & do the firms cooperate by charging a high price? Consider a situation where two identical firms are simultaneously deciding whether to price high or price low. If both firms price high, they both receive half of the market's profits,. If one firm prices high, while the other firm prices low, the low pricing firm receives all of the market's profits, 7, while the high pricing firm receives 0 profits. If both firms price low, they both receive 0 profits. (a) Depict the normal form representation of this simultaneous move game. Find all psNE. Intinin oly (b) Suppose now that the firms decided to collude to charge a high price. For what minimal discount factor & do the firms cooperate by charging a high price?

Answer rating: 100% (QA)

ANSWER a The game can be represented in the followin... View the full answer