(a) Use the following normal-form game to answer the questions below. Firm B Low Price High Price Firm A Strategy Low Price $X, $X $300,-$50 High Price -$50, $300 $100, $100 Suppose the game is infinitely repeated, both firms agree to charge a high price, provided no player has charged low price in the past. Suppose now the interest rate is 6%, and the payoffs for both players are $X in the one-shot Nash equilibrium. What is the maximum value of $X, such that collusion can be sustained? (b) Short Message Service (SMS) has been a traditional text messaging service used by many cellular phone owners for years. Usually, when you send a text message to friends who are using the same mobile phone operator as you (Intra-SMS), it is free of charge. However, when you send a text message to friends who are using a different mobile phone operator from you, you have to pay for each text message. Recently years, many cellular phone users switched to use instant messaging services instead of SMS. WhatsApp is one of the instant messaging application providers. After downloaded the software to their cellular phones, consumers can enjoy free of charge instant messages service and can send free messages to friends who are from any mobile phone operators. Name the strategy adopted by WhatsApp. Briefly explain the rationale of this strategy.
(a) Use the following normal-form game to answer the questions below. Firm B Low Price High Price Firm A Strategy Low Price $X, $X $300,-$50 High Price -$50, $300 $100, $100 Suppose the game is infinitely repeated, both firms agree to charge a high price, provided no player has charged low price in the past. Suppose now the interest rate is 6%, and the payoffs for both players are $X in the one-shot Nash equilibrium. What is the maximum value of $X, such that collusion can be sustained? (b) Short Message Service (SMS) has been a traditional text messaging service used by many cellular phone owners for years. Usually, when you send a text message to friends who are using the same mobile phone operator as you (Intra-SMS), it is free of charge. However, when you send a text message to friends who are using a different mobile phone operator from you, you have to pay for each text message. Recently years, many cellular phone users switched to use instant messaging services instead of SMS. WhatsApp is one of the instant messaging application providers. After downloaded the software to their cellular phones, consumers can enjoy free of charge instant messages service and can send free messages to friends who are from any mobile phone operators. Name the strategy adopted by WhatsApp. Briefly explain the rationale of this strategy.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:(a) Use the following normal-form game to answer the questions below.
Firm B
Low Price High Price
Firm A
Strategy
Low Price
$X, $X
$300,-$50
High Price -$50, $300 $100, $100
Suppose the game is infinitely repeated, both firms agree to charge a high price, provided no
player has charged low price in the past. Suppose now the interest rate is 6%, and the payoffs
for both players are $X in the one-shot Nash equilibrium. What is the maximum value of $X,
such that collusion can be sustained?
(b) Short Message Service (SMS) has been a traditional text messaging service used by many
cellular phone owners for years. Usually, when you send a text message to friends who are
using the same mobile phone operator as you (Intra-SMS), it is free of charge. However, when
you send a text message to friends who are using a different mobile phone operator from you,
you have to pay for each text message.
Recently years, many cellular phone users switched to use instant messaging services instead
of SMS. WhatsApp is one of the instant messaging application providers. After downloaded
the software to their cellular phones, consumers can enjoy free of charge instant messages
service and can send free messages to friends who are from any mobile phone operators.
Name the strategy adopted by WhatsApp. Briefly explain the rationale of this strategy.
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