In-Class Exercise. Suppose there are two Pizzerias in a small college town and assume the following matrix describes the set of strategies and payoffs of the game: Pizzeria 2 High Price Medium Price High Price 60,60 36,70 Pizzeria 1 70,36 50,50 Medium Price (a) What is the Nash equilibrium in the single shot game? Could the pizza companies gain from cooperating? Explain what "cooperation" would mean in this context. (b) If the game is repeated over an infinite time horizon, when can cooperation be sustained via a Grim Trigger strategy? That is, what is the for which Grim Trigger will be a Nash equilibrium?
