There are two shops on the same road: one called Betty's Store and one called Supermarket Supreme. Both stores sell similar items and are competing for market share. Assume that a new type of soda is released, and that both Betty's Store and Supermarket Supreme must decide how they want to market this product. They can either choose to run a launch special and offer discounted prices on this new product (DP), or they can choose to mark up their prices and maximise revenue for themselves (MR). The interaction between the two stores is represented in strategic form below, where the payoffs represent monthly profits in thousands of Dollars.

		Supermarket Supreme
		DP	MR
Bettys Store	DP	75, 75	150, 25
	MR	25, 150	120, 120

1.1. What is/are the Nash equilibrium/equilibria of this game? What type of game can this be classified as?

1.2.

Assume that the manufacturer of the new soda indicates that they plan on releasing a new product every month for the next 18 months. If Betty's Store and Supermarket Supreme interact according to the normal form game above each time a new product is released, will they be able to maintain cooperation over the course of their interaction? Why or why not?

1.3.

Imagine instead that the interaction will now repeat every month forever, but that both stores adopt the Grim conditional strategy: choose MR if their opponent chooses MR, but choose DP forever if their opponent chooses DP. Calculate the interest rate, r, that would make it worthwhile for one of the shops to defect forever. Given your answer, is it likely that the firms will choose to defect forever?

1.4.

Due to the outbreak of the pandemic, assume that there is now only a 60% chance that the interaction between the two stores will continue. If both firms have access to interest-bearing accounts that provide them with a return of 12.5% per month, will it be worthwhile for the firms to maintain cooperation now? Show all working, and do not round off your answers until the end of the question.