1. (10 points) Consider the following two-period repeated game. The stage game i

Question

1. (10 points) Consider the following two-period repeated game. The stage game is payoffs SHC S3, 30,1 0, 0 H 1,01, 1 6,0 C 0, 00, 6 5, 5 (a) Find all pure-strategy Nash equilibria if the stage game is played only once. (b) Now consider the two-period game. Suppose the discount factor 1 for both (c) For what other values of the discount factor , will the strategies described in part 2. (10 points) Consider an infinitely repeated price-competition game. The stage players. Find a subgame perfect equilibrium in which each player receives a total payoff of at least 8. (b) still be subgame perfect equilibrium? game is the followin

Explanation / Answer

A) (S,S) (H,H) is a nash equilibrium

B) play (C,C) in period 1 and (S,S) in period 2.

C) payoff of playing (C,C) in both period=5+5=10 each

But each player have an incentive to deviate. So both will never collusenif both knows that game is played only twice.

Thus (S,S) will be the nash equilibrium in both period.

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