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Question 5 Suppose there are only two banks in Victoria: Commonwealth Bank (CBA) and National Australia Bank (NAB). Both CBA and NAB are considering whether

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Question 5

Suppose there are only two banks in Victoria: Commonwealth Bank (CBA) and National Australia Bank (NAB). Both CBA and NAB are considering whether to reduce the interest rates charged on the mortgage loans for their customers.

The table below presents the pay-off matrix for CBA and NAB.

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- - Keep rates the same Reduce the rates NAB earns $500 mil NAB earns $550 mil Keep rates the same CBA earns $500 mil CBA earns $200 mil NAB earns $350 mil NAB earns $400 mil Reduce the rates CBA earns $600 mil CBA earns $400 mil

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