suppose firm 1 & firm 2 are engaged in a simultaneous move, one shot game in which each firm is setting their advertising levels. there are three options: high advertising, moderate advertising, and no advertising. the chart is a payoff matrix for the two firms.(the payoffs are in millions and should be read firm 1's payoff, firm 2 payoff)
http://i15.tinypic.com/4bgi1ix.jpg
I found that the Nash Equilibrium is (10,10) but im stuck with the following question
1. if the two firms were to collude, what level of advertising do you think they would agree on?
2. suppose that this game were infinitely repeated. what would the interest rate have to be in order to sustain collusion between the firms? (it might be easiest to try and determine what interest rate would be necessary to stop firm B from "cheating")
thanks in advance
2007-03-18
04:14:17
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2 answers
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asked by
Mike J
1