game theory

Question 1

prisoner dilemma

Answer 1

firm a and b
-high vs low price
-left hand is on the left, right is on top
-top left both high, top right, left low, right high, bottom left, left high, top low, bottom right, both low
-what each firm should do depends on what the other firm does
-NASH equilbirum is at the low price, lasts in the long term and a dominant strategy

Question 2

inclusion of game theory

Answer 2

-price rigidity at low price and thus non-price comp
-temptation to collude
-incentive to cheat on collusive agreement