Q. You operate in a duopoly in which you and a rival must simultaneously decide illustrate what price to advertise in 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, one charging higher price loses $5 and one charging lower price makes $5.
a. Find Nash equilibrium for a one-shot version of this game.
b. Now suppose game is infinitely repeated. If interest rate is 10 percent, can you do better than you could in a one-shot play of game? Explain.
c. Explain how "history" affects ability of firms in this game to achieve an outcome superior to that of one-shot version of game.