In the repeated-game aiine example, what happens if the game is played forever,
ID: 1107235 • Letter: I
Question
In the repeated-game aiine example, what happens if the game is played forever, but one or both firms care only about current profit? Assume that United Airlines (UA) and American Airlines (AA) are playing a two-firm, quantity-setting game. Quantities are in thousands of passengers per quarter, profits are in millions of dollars per quarter 9A 64 9a = 48 Suppose the game is played forever, but one or both of the airlines care only about current profit 12.3 11.4 What is the Nash equilibrium in the first (or next) period of this game? 0 A. The Nash equilibrium is for American to produce q=48 and United to O B. The Nash equilibrium is for American to produce q=64 and United to qu = 64 12.3 15.3 produce q 64 UA 15.3 13.8 produce q =48 qu = 48 ° C. The Nash equilibrium is for both airlines to produce q=64 0 D. The Nash equilibrium is for both airlines to produce q=48 0 E. This game does not have a Nash equilibrium 11.4 13.8Explanation / Answer
If American Airplines adopts qA = 64 strategy then United Airlines gets a profit of 12.3 million if it adopts qu = 64 strategy and profit of 11.4 million, if it adopts qu = 48 strategy. Since, profit is higher in case of qu = 64 strategy, United Airlines will adopt qu = 64 strategy, if American Airlines adopts qA = 64 strategy.
If American Airplines adopts qA = 48 strategy then United Airlines gets a profit of 15.3 million if it adopts qu = 64 strategy and profit of 13.4 million, if it adopts qu = 48 strategy. Since, profit is higher in case of qu = 64 strategy, United Airlines will adopt qu = 64 strategy, if American Airlines adopts qA = 48 strategy.
So, United Airlines will adopt qu = 64 strategy whatever be the strategy adopted by the American Airlines.
If United Airplines adopts qu = 64 strategy then American Airlines gets a profit of 12.3 million if it adopts qA = 64 strategy and profit of 11.4 million, if it adopts qA = 48 strategy. Since, profit is higher in case of qA = 64 strategy, American Airlines will adopt qA = 64 strategy, if United Airlines adopts qu = 64 strategy.
If United Airplines adopts qu = 48 strategy then American Airlines gets a profit of 15.3 million if it adopts qA = 64 strategy and profit of 13.4 million, if it adopts qA = 48 strategy. Since, profit is higher in case of qA = 64 strategy, American Airlines will adopt qA = 64 strategy, if United Airlines adopts qu = 48 strategy.
So, American Airlines will adopt qA = 64 strategy whatever be the strategy adopted by the United Airlines.
Thus, the Nash Equilibrium of this game is (qu = 64, qA = 64).
Hence, the correct answer is the option (C).