Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please just answer part d). If both firms choose price simultaneously, each firm will change low price, which is the Nash equilibrium. Each firm's pay

please just answer part d).

image text in transcribedimage text in transcribed
If both firms choose price simultaneously, each firm will change low price, which is the Nash equilibrium. Each firm's pay off in this case is 5. b. Both firms can collude to charge a medium price by following a grim trigger strategy which is as follows. 1. Collude in period ! 2. If the other player colludes, collide again in the next period 3. If the other player cheats, play L forever To sustain such an agreement, it must be that ITGTS , IT cheat for both players .. 10 + 8.10 + 8 2 10 + ... > 12 + 5 + 8. 5 + 89. 5 +... ) 12 + 5 . 8 1 - 8 1 - 8 10 - 58 > 12 - 10 - 58 ) 12- 128 1 - 8 :. 78 >2 - 832/71 ( same for both players since it is a symmetric game ) C. To collude at high price, players can again follow GTS To sustain the agreement, ITGTS, TT cheat 13 7 18+ 5. 8 1 - 8 1 - 8 1. 13 - 58 > 18 - 13-58>18-188 1 - S ". 138 > 5 = 8> 5/13/2. 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 L M H L (5, 5) (12, 4) (14, 2) Splint M (4, 12) (10, 10) (18, 9) H (2, 14) (9, 18) (13, 13) a. Suppose that both firms are choosing prices simultaneously. What price will each firm charge. What is each firm's profit? (3 pts) b. 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) c. 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) d. 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)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Transdisciplinarity For Sustainability Aligning Diverse Practices

Authors: Martina Keitsch

1st Edition

0429581505, 9780429581502

More Books

Students also viewed these Economics questions

Question

2. Ask questions, listen rather than attempt to persuade.

Answered: 1 week ago

Question

1. Background knowledge of the subject and

Answered: 1 week ago