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3. (30 points) Two firms want to cooperating by using collusive pricing with payoffs taking the form of a repeated prisoner's dilemma game. When they
3. (30 points) Two firms want to cooperating by using collusive pricing with payoffs taking the form of a repeated prisoner's dilemma game. When they both cooperate, both firms get a profit of 20 for the period. If one firm defects and cuts prices, they will get a profit of 50 in the current period and the other player will get 0. If both firms defect and price low, both get 10 for the period. Imaginethe firms are using a grim trigger strategy. What is the lowest discount factor where both firms will be able to sustain cooperation
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