A and B are going to play a game twice. During both repetitions, if they both select a low price or a high price, their market share stays the same. But if one selects a low price while the other selects a high price, then the one with the low price gets more money while the one with the high price loses some market share. Based on this information, what is the most likely outcome in both periods?
What will be an ideal response?
Start with the second period. If you are A, you will select a low price because that is the best you can do. Knowing this, B will also select a low price. Now you know that B will select a low price in the second period and the game ends there. So, in the first period, you can do no better than select a low price. Knowing this, B will also select a low price. Hence, in both the periods, both the firms will select a low price.
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A flat tax
A. Includes many tax brackets. B. Encourages economic activity through deductions and credits. C. Completely eliminates potential vertical inequities. D. Reduces the government's ability to alter the mix of output.