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Two rival companies competing in the same market need to decide their plans for future expansion of their stores. The Table below shows the possible outcomes of their mutually interdependent actions (payoffs are profits in millions of sterling pounds) (5%)

    Giga Company
Titanic Conglomerate   No Change Refurbishment of existing stores Large Expansion
No Change     30, 40       25, 35    15, 24
Refurbishment of existing stores      35, 30      28, 32    18, 33
Large Expansion     12, 22     18, 20    20, 25

 

The Nash equilibrium:                 

(A)         does not exist.

(B)         occurs when both firms choose Refurbishment of existing stores.                      

(C)         occurs when both firms choose Large Expansion.

(D)         occurs when both firms choose No Change.

(6)          If in theory collusion is good for the members of a cartel, give at least three reasons why in practice collusion is not widespread (3%)

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