Answer to Question 1
The firms in a duopoly with homogeneous products would be better off if they both charge a price above marginal cost. However, firms continue to charge a price slightly below the rival's price in order to gain market share. This price cutting continues until both firms charge a price equal to marginal cost. This situation is similar to a prisoners' dilemma game. In a prisoners' dilemma game, both the prisoners would be better off if neither of them confesses the crime. However, both end up confessing because they have to make decisions simultaneously without communicating with each other.
Answer to Question 2
Common pool resources are overexploited because these resources are non-excludable in consumption. However, these goods are rival in consumption. Therefore, the overexploitation of these resources leads to their depletion.
Bronchi Model
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