Question: The following extensive form game (i.e., tree) represents the sequence of decisions and possible outcomesfor two firms in a cartel, Firm A and Firm B.

The following extensive form game (i.e., tree) represents the sequence of

The following extensive form game (i.e., tree) represents the sequence of decisions and possible outcomesfor two firms in a cartel, Firm A and Firm B. Both firms can either decide to cooperate on a price fixing arrangement or cheat on a price fixing arrangement.Each potential combination of decisions presents the payoffs to these two firms. The first number represents Firm A's payoff and the second number is Firm B's.

What is the Nash equilibrium (or what are the Nash equilibria)of this game?

Both firms will cooperate

Both firms will cheat

Firm A will cooperate and Firm B will cheat

Firm A will cheat and Firm B will cooperate

None of the above.

decisions and possible outcomesfor two firms in a cartel, Firm A and

Cooperate 400, 400 Cooperate Cheat 300, 500 Firm A Firm B Cooperate Cheat 500, 300 Cheat 200, 200

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