Consider a market dominated by just two airlines, American and United. Each can choose to restrict capacity and charge a high price or expand capacity and charge a low price. If one of the two airlines expands capacity and reduces the price and the other does not, the airline that reduces price will be able to capture customers from the other airline. The economic profits for each outcome are illustrated in the following payoff table: United charges United charges a high price a low price American receives American receives American $20 billion profit $5 billion loss charges a United receives United receives high price $15 billion profit $20 billion profit American receives American receives American $25 billion profit $0 profit charges a United receives United receives low price $5 billion loss $0 profit Stevenson/Wolfers, Principles of Economics, 1e, 2020 Worth Publishers a. If American and United are playing a simultaneous game, what is the Nash equilibrium (or equilibria)? Use the check mark method to help illustrate your answer. b. Is this game an example of a Prisoner's Dilemma? c. If United and American were to play this game as a repeated game for two periods, what outcome would occur in the second period? d. What outcome would occur in the first period? e. If United and American play this game for an indeterminate number of periods so that neither American nor United knows when the game will effectively end, then each will play a Grim Trigger strategy. In this case the payoff table will become: e. If United and American play this game for an indeterminate number of periods so that neither American nor United knows when the game will effectively end, then each will play a Grim Trigger strategy. In this case the payoff table will become: United charges United charges a high price a low price (continues to cooperate) (deviates from cooperation) American receives $20 American receives $5 American billion profit today and billion loss today and $0 charges a in every period in future profit in every future period. high price (continues to United receives $15 United receives $20 billion profit today and billion profit today and $0 cooperate) in every period in future profit in every future period. American receives $25 American receives $0 American billion loss today and $0 profit today and charges a profit in every future period. in every period in future. low price (deviates from United receives $5 United receives $0 cooperation) billion loss today and $0 profit today and profit in every future period. in every period in future. Stevenson/Wolfers, Principles of Economics, le, © 2020 Worth Publishers What is the Nash equilibrium (or equilibria)? Use the check mark method to help illustrate your answer.