4. Tim Hortons and Starbucks are in a price competition. Both can choose either a low price (Defect) or a high price (Cooperate), and their

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4. Tim Hortons and Starbucks are in a price competition. Both can choose either a low price (Defect) or a high price (Cooperate), and their choices are made simultaneously. The reward payoff when both cooperate is 4, and the punishment payoff when both defect is 2. The temptation payoff is 6 and the sucker payoff is 0. a. This game is played repeatedly five times. What is the SPE of this game? (5 points) b. Assume now that the game is played infinitely many times and both companies have a discount factor. Under what conditions would the Grim Trigger strategy played by both be an SPE in this game? Interpret the results. (12 points) c. If Tim Hortons and Starbucks collude and both choose the high price they get caught and both have to pay a fine of 3 in each period when they collude. How does this change your answers in parts a. and b.? (8 points)