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4. As you may have heard, the young crown price of Saudi Arabia, Mohammad bin Salman, has undertaken certain questionable practices of late, that has

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4. As you may have heard, the young crown price of Saudi Arabia, Mohammad bin Salman, has undertaken certain questionable practices of late, that has led to a deterioration of U.S.-Saudi relations. As a result, the U.S. Congress has decided to impose trade sanctions on the Saudis (even though both countries still benefit from trade, with Saudi petroleum a key driver of global oil prices, even after the shale revolution). In any case, the respective heads of state get together and try to negotiate a trade agreement. They each have three possible choices: (a) Maintain tariffs against the other nation (T); (b) Seek mediation from the WTO, which would implement an international trade agreement at a small cost (M); (c) Unilaterally remove tariffs (F). The payoff matrix is as given below. Is there a dominant strategy for either player? Find all the (pure strategy) Nash equilibria in the game. How would this change if, instead, the mediation is costless and yields a payoff of 50 to each nation (assuming mutually successful mediation) and a payoff of 0 (if the other nation chooses otherwise)? " Saudi Arabia T M F T -50,-50 -150, -25 -100, 0 United M States -25, -150 -25, -25 -25, 50 0, -100 50, -25 100, 100

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