2. Two telecom companies, Splint and Horizon are deciding how much to charge for their new phone plan which has unlimited minutes and 15GB of data. To simplify the analysis, both firms can charge either a low price (L), a medium price (M) or a high price (H). The payoffs for both firms is given in the table below.

Horizon

LMH

L(5,5) SplintM(4,12)H(2,14)

(12,4) (10,10) (9,18)

(14,2)

(18,9) (13,13)

a. b.

c.

d.

Suppose that both firms are choosing prices simultaneously. What price will each firm charge. What is each firm's profit?(3 pts)

Now suppose that Splint has to choose its price before Horizon. Draw the extensive form (game tree) of this game. What is the subgame perfect equilibria of this game? How much profit is each firm making in equilibrium?(4 pts)

Suppose that again both firms are choosing prices simultaneously but instead of playing the game once, the game is played infinitely between Splint and Horizon. Is it possible for the two firms to collude in order to both charge a medium price? What is the minimum discount factor required in order to sustain such an agreement?(4 pts)

Is it possible for the two firms to collude in order to both charge a high price? What is the minimum discount factor required in order to sustain such an agreement?(4 pts)