Repeated Game and Collusion Consider two firms that are playing a Bertrand game at each stage of an infinitely repeated game. They have the same discount factor d < 1 and the same constant marginal cost c. If they co-operate in the stage game then they each produce half the monopoly quantity qm and sell at the monopoly price pm. (a) What strategies, based on a threat of charging c in the stage game, the collusive outcome? will produce (b) For what values of 6 do these strategies constitute a sub-game perfect Nash equi- librium?

Repeated Game and Collusion Consider two firms that are playing a Bertrand game at each stage of an infinitely repeated game. They have the same discount factor d < 1 and the same constant marginal cost c. If they co-operate in the stage game then they each produce half the monopoly quantity qm and sell at the monopoly price pm. (a) What strategies, based on a threat of charging c in the stage game, the collusive outcome? will produce (b) For what values of 6 do these strategies constitute a sub-game perfect Nash equi- librium?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.6P

See similar textbooks

Similar questions

When OPEC raised the price of oil dramatically in the mid-1970s, experts said it was unlikely that the cartel could stay together over the long term-that the incentives for individual members. to cheat would become too strong. More than fort),r years later, OPEC still exists. Why do you think OPEC has been able to beat the odds and continue to collude? Hint: You may wish to consider non-economic reasons.
Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.
Which one the following statements is correct? A. In a subgame perfect Nash equilibrium of the infinitely repeated Bertrand duopoly game, the outcome is either the Bertrand paradox or like a monopoly. B. The Bertrand Paradox outcome cannot be supported by a subgame perfect Nash equilibrium of the infinitely repeated Bertrand duopoly game. C. The Bertrand Paradox outcome can be supported by a subgame perfect Nash equilibrium of the infinitely repeated Bertrand duopoly game. D. None of the other three statements is correct.
A Prisoner's Dilemma Game produces a second-best solution because:A All of the aboveB This game only applies to monopoliesC It is a cooperative game and firms refuse to stick to the agreementD If its a non-cooperative game and it is illegal for firms to collude
. Compare the quantity and price of an oligopoly tothose of a monopoly
mether to produce a low output or a high output. nese output strategies with corresponding profits are depicted in the ayoff matrix to the right. Kuwait's profits are in red and Saudi Arabia's are in blue. Suppose the two countries form a cartel. What is the cooperative equilibrium? Kuwait O A. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output. Low Output High Output O B. A cooperative equilibrium does not exist for this game. $125 $75 Low Output O C. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output. $8 $13 Saudi Arabia O D. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output. $98 $70 E. The cooperative equilibrium is for Saudi Arabia to broduce a low output and Kuwait to produce a low output. High Output What is the Nash equilibrium for this game? O A. The Nash equilibrium is for Saudi Arabia to produce a high…
The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration in Canada. Let's assume that the Canadian halibut processing industry there are only two firms(duopoly). Under such a market structure, if one of the halibut processing firm increases its price, then the other firm in the halibut processing industry can: keep the price of its processed halibut constant and thus increase its market share. keep its price of its processed halibut constant and thus decrease its market share. decrease its price of its processed halibut and thus decrease its market share. try to achieve economies of scale. increase its price of its processed halibut and thus increase its market share.
Firms J and K produce compact-disc players and compete againstone another. Each firm can develop either an economy player (E)or a deluxe player (D). According to the best available marketresearch, the firms’ resulting profits are given by the accompanyingpayoff table.a. The firms make their decision independently, and each is seeking itsown maximum profit. Is it possible to make a confident predictionconcerning their actions and the outcome? Explain.Firm KE DE 30, 55 50, 60 Firm JD 40, 75 25, 50b. Suppose that firm J has a lead in development and so can move first.What action should J take, and what will be K’s response?c. What will be the outcome if firm K can move first?