Discuss whether the equilibrium outcome of the game

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Two firms, A and B, are situated next to a lake, and it costs each firm €1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake depends on how many firms are polluting the lake. The cost to each firm is €1,000 multiplied by the number of polluting firms. Assume that the firms do not communicate with each other. Each firm is facing a choice of either buying a filter or not.

(a) Suppose this game was played repeatedly. Discuss whether the equilibrium outcome of the game would be the same as when it is played once, referring to both finite and infinite games in your answer.

Reference no: EM131392515

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