Compute the nash equilibrium of the stage game

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Reference no: EM131250272

Examine the infinitely repeated tariff-setting game, where the stage game is the two-country tariff game in Chapter 10 (see also Exercise 3 in that chapter).

(a) Compute the Nash equilibrium of the stage game.

(b) Find conditions on the discount factor such that zero tariffs (x₁ = x₂ = 0) can be sustained each period by a subgame perfect equilibrium. Use the grim-trigger strategy profile.

(c) Find conditions on the discount factor such that a tariff level of x₁ = x₂ = k can be sustained by a subgame perfect equilibrium, where k is some fixed number between 0 and 100.

Reference no: EM131250272

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