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The US FTC blocks the merger of the two firms. So they decide instead to collude, using a grim trigger strategy. From now on, assume
The US FTC blocks the merger of the two firms. So they decide instead to collude, using a grim trigger strategy. From now on, assume that the pricing game is repeated an infinite number of period (where each period or season is defined as a six-month length of time, either summer or winter). Each firm discounts their future profits by a discount factor that lies between 0 and 1. The firms decide to collude and set the monopoly price and produce the monopoly quantity every period (that you derived in the previous question). The firm adopt a grim trigger strategy to punish any firm that cheats on the agreement. If in any period t either firm ever deviates from the agreed prices, then both firms will revert back to Bertrand competition in all future periods. 3. (4 pts) Carefully describe a grim trigger collusive strategy for the infinitely repeated game. Make sure to specify prices and quantities in both summer and winter, and describe what the firms will do in the event that one firm deviates
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