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Consider a two-period repeated game with the following stage game. C D E 4, 4 0, 0 -1, 5 D 0, 0 2, 2 0,
Consider a two-period repeated game with the following stage game. C D E 4, 4 0, 0 -1, 5 D 0, 0 2, 2 0, 0 E 5, -1 0, 0 0, 0 This stage game is played twice and the repeated-game payoffs are simply the sum of the payoffs in each of the two periods. A strategy of each player is to choose one of C, D, E in stage 1, and for each possible outcome of stage 1, choose one of C, D, E in stage 2. Show that, for each player, playing C in period 1 be sustained in a subgame perfect equilibrium of this game. [In your answer, provide the relevant SPE strategy profile and show that it is indeed a SPE.] L
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