What is the range of discount rates

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In an infinitely repeated game between two firms, suppose that each earns a payoff of 20 if they collude on price and 20 if they compete on price. If one firm sets the collusive price and the other "cheats", the cheater gets 25 for one period, after which the non cheater invokes the grim trigger punishment strategy.

a) What is the range of discount rates over which cooperation (collusion is a Nash equilibrium?

b) Suppose this were a one-shot game with the above payoffs. What would be the Nash equilibrium prices?

Reference no: EM13190712

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