Citizens Bank Collude: Raise Rates Defect: Keep Rates where they are PNC Collude
ID: 1091448 • Letter: C
Question
Citizens Bank
Collude: Raise Rates
Defect: Keep Rates where they are
PNC
Collude: Raise Rates
(900, 600)
(700, 800)
Defect: Keep Rates where they are
(1100, 300)
(800,400)
a. Does PNC have a dominant strategy? What is it? Does Citizens have a dominant strategy? What is it?
b. Does the result of your answer change if the game is played an infinite number of times? Why or why not. Properly use game theoretic terminology in your answer.
Citizens Bank
Collude: Raise Rates
Defect: Keep Rates where they are
PNC
Collude: Raise Rates
(900, 600)
(700, 800)
Defect: Keep Rates where they are
(1100, 300)
(800,400)
Explanation / Answer
b) According to the given dominant strategy equllibrium the outcome is (defect,defect) with a payoff of 800 & 400. if they collude they can get a payoff of 900 & 600. to sustain this (collude,collude) equillibrium suppose PNC plays a Grim trigger strategy and says that it will play collude if citizens plays collude, but if in any point of time citizens plays defect to get the high payoff 800 from the next time onwards PNC will play defect and bring down citizens payoff to 400. so if both the players are 'patient' enough they will be afraid of the future consequences and will play collude and so this (collude,collude) equillibrium will exist