Suppose that this rate-setting game is played by the banks infinitely many times. Each bank has a discount rate of ????, meaning that $1 next period is worth $???? current period.

For what values of ???? is this outcome (low rate, low rate) maintainable if Wilbur is playing the grim trigger strategy?

Transcribed Image Text:

Wilbur High Rate Low Rate High Rate Templeton 20, 20 Low Rate 10, 80 80, 10 50,50 Wilbur High Rate Low Rate High Rate Templeton 20, 20 Low Rate 10, 80 80, 10 50,50