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Second cup Expand Open Leave as is Expand 500, 500 250, 700 300, 200 Tim Hortons Open 700, 250 400, 400 320, 100 Leave
Second cup Expand Open Leave as is Expand 500, 500 250, 700 300, 200 Tim Hortons Open 700, 250 400, 400 320, 100 Leave as is 200, 300 100, 320 250, 250 Part B: repeated game Now again assume the game is simultaneous and both players are rational. It seems realistic to assume that the game could continue. Assume they continue playing this simultaneous game for 50 years. But time is money, so a dollar of profit, a year from now is only valued as much as $d received today, where d (the dis- count rate) is some amount less than $1. Assume that Tim Hortons adopts a grim trigger strategy whereby Tim Hortons pledges to "expand" as long as Second cup "expands". But should Second cup open new store, Tim Hortons will respond by opening new store every year, forever and ever. h) What stream of profits will Tim Hortons generates if both players adopt such a grim strategy? (Don't forget to discount each year's future profits by the appropriate multiple of d.) Express your answer as a sum. i) "At what level of d is Tim Hortons indifferent between cheating on or abid- ing by the agreement? Assume, however, that Second cup is playing a tit-for-tat strategy rather than a grim trigger. j) What stream of profits will Tim Hortons generate if Tim Hortons always co- operates and Second cup follows the tit-for-tat strategy? k) What stream of profits will Tim Hortons generate if Tim Hortons defects once against Second cup? 1) Assume that d=0.5. Is it worthwhile to defect once against Second cup? And if it's worthwhile to defect once, should it be worthwhile to defect more than once should the game last that long? dnes the value of de
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