1. 9. Telesource and Belair are two of the largest firms in the wireless carrier market in a certain country. Together, these firms account for more than 80 percent of the market.

a. Given that both firms differentiate their products, how is a Nash equilibrium achieved in this market?

b. Suppose both Telesource and Belair decide to collude and set the same price. Their payoffs from cheating and colluding are given in the matrix below. What is the Nash equilibrium in this game?

Telesource Collude Cheat Belair Collude Belair earns $12 million Telesource earns $12 million Belair earns $2 million Telesource earns $15 million Cheat Belair earns $15 million Telesource earns $2 million Belair earns $10 million Telesource earns $10 million