Question

2. Consider the coupon game from the lecture slides. (Recall that the strategy C means "print coupons", and N means "do not print coupons".) Firm 2 15, 15 Firm 25, 10 20, 20 10, 25 a. Suppose that instead of playing this game only once, the firms play it every week for 2 years (104 times). Is any outcome possible in which - at least sometimes - the firms cooperate with each other (do not print coupons)? Explain why or why not. b. Suppose instead that the firms play every week forever, and both firms have the discount factor o (between 0 and 1 exclusive). For what values of o is it possible that the two firms cooperate with each other? (Hint: suppose both firms choose grim-trigger strategies.) 3. Repeat Question 2(b) for the Prisoners' Dilemma below. Clyde Cooperate Defect 9,9 10,0 0, 10 Bonnie Cooperate Defect 5, 5

Answer 1

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(4.9 D (I0,0) (5,5) olo) Cooperation olc = <c, c> o+ 55/-) 98 any one deurates, then gets to, Next pertod onuands, pla NE ot Stu8e Game,