And every January they will decide about the prices that they want to charge or
the quantity that they want to produce. Okay, it comes out the same way.
And the game is repeated every year and there's a probability of p that it goes
on in the next year. So, how does that represent itself as a
game? Well, what are the actions that this
game gives us. So, if both countries charge the monopoly
price then the market is shared equally. And the overall profit is going to be 50
million. Think of this as Australians and South
Africa are getting together and behaving as a monopoly.
A monopoly is a firm that is just, the only firm on the market and, therefore,
can set any price that they want to maximize profits.
Okay? So here, South Africa and Australia get
together and behave as one monopoly. And make overall profits of 50 million
and they then subsequently share these profits amongst themselves.
If one country charges a slightly lower price and the other firm charges the
monopoly price, then the country with the slightly lower price serves the entire
market and makes profits of 49 million. If both countries charge lower price,
it's going to be the start of a downward spiral.
And, therefore, it's going to end in fierce competition.
And both firms, both countries make zero profits.
Okay? So if we played this game just a single
time, how is it going to look like? Well we've got Australia and we've got
South Africa charging monopoly price or low price.