Assume Two Locally Owned Used Car Dealerships That Have Been

Essay

Assume two locally owned used car dealerships that have been in direct competition for many decades. They have a choice of selling high-quality cars at a high price but also high costs because of the repairs that have to be made. The other choice is to sell low-quality cars at a low cost but market them as high quality cars. Explain using game theory why it is in the interest of both of these companies to continue to sell high-quality cars but it may not necessarily be in the interest of a new out-of-town dealership that has recently moved into town to do the same.