Examine the infinitely repeated tariff-setting game, where the stage game is the two-country tariff game in Chapter 10 (see also Exercise 3 in that chapter).
(a) Compute the Nash equilibrium of the stage game.
(b) Find conditions on the discount factor such that zero tariffs (x1 = x2 = 0) can be sustained each period by a subgame perfect equilibrium. Use the grim-trigger strategy profile.
(c) Find conditions on the discount factor such that a tariff level of x1 = x2 = k can be sustained by a subgame perfect equilibrium, where k is some fixed number between 0 and 100.