Market with inverse demand

If two identical firms with zero cost compete in a market with inverse demand:
9 (Q) = 12 ‘ q‘

(a)Suppose first that they compete by setting quantities, and that this game is infinitely repeated with a common discount factor
(0,1) . For what values of d is it possible to sustain a grim-trigger strategy SPNE in which the firms equally split the monopoly
profit?

Assume now that the firms compete by setting prices.

For what values of d is it possible to sustain a grim-trigger strategy SPNE in which the firms equally split the monopoly

b) Suppose finally that the firms compete by setting prices, but instead use a forgiving trigger strategy in which they revert to cooperation after one period following deviation. Can this be sustained as a SPNE for any d: (0,1)?

Explain why the answers differ in questions (a), (b)

Last Updated on February 11, 2019 by Essay Pro