Problem 2: Repeated Output Game Consider an industry that consists of two firms, A and B. Each can produce either a high

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Problem 2 Repeated Output Game Consider An Industry That Consists Of Two Firms A And B Each Can Produce Either A High 1 (112.74 KiB) Viewed 50 times

Problem 2: Repeated Output Game Consider an industry that consists of two firms, A and B. Each can produce either a high level of output or a low level of output. Firms choose output simultaneously. The payoff matrix of the game is shown in table 2. 1. Suppose the game is to be played only once. Show that high output is a dominant strategy for both players. 1 Firm B High Low High -2,-2 3,-3 Low -3, 3 2,2 Firm A Table 2: The Game 2. Now suppose this game is to be played an infinite number of times. Consider the following trigger strategy. A firm chooses low in the first period. In later periods, he chooses low if his opponent has chosen low in every period up to that point; otherwise he chooses high. For what range of values of the discount factor do these trigger strategies constitute a Nash equilibrium?