You Operate in a Duopoly in Which You and a Rival

question 24

Essay

You operate in a duopoly in which you and a rival must simultaneously decide what price to advertise in the weekly newspaper.If you each charge a low price,you each earn zero profits.If you each charge a high price,you each earn profits of $3.If you charge different prices,the one charging the higher price loses $5 and the one charging the lower price makes $5.
a.Find the Nash equilibrium for a one-shot version of this game.
b.Now suppose the game is infinitely repeated.If the interest rate is 10 percent,can you do better than you could in a one-shot play of the game?

c.Explain how "history" affects the ability of firms in this game to achieve an outcome superior to that of the one-shot version of the game.

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Definitions:

Enslaved Men

Individuals, particularly males, who were forced into servitude without freedom or rights, commonly in historical contexts referring to practices such as those in pre-Civil War America.

South Carolina

A state in the southeastern United States, notable for its historical significance as the first state to secede from the Union leading up to the American Civil War.

Money-Making Opportunities

Various ways or strategies through which individuals or businesses can generate income or profit.

Consumer Revolution

A period marked by an increase in the consumption and variety of goods available to the consumer, significantly changing the social and economic landscape.