1.4 New Forge, a small tourist town, has two Italian restaurants, Arcaro’s and Genell’s. Normally, both restaurants prosper with no advertising. Arcaro’s could take some of Genell’s customers by running radio ads, and Genell’s could do the same thing. The onemonth profit matrix (showing payoffs in thousands of dollars) is:

a. What is the Nash equilibrium in the static (onemonth)
game?

b. If the game is repeated indefinitely, can the use of tit-for-tat strategies result in a Nash equilibrium?

c. Does the game have multiple equilibria if it is repeated indefinitely?

d. Would pre-play communication (Chapter 12) or the Pareto criterion (Chapter 12) have implications for the repeated game equilibrium?