There are two firms competing in a Cournot duopoly facing the following demand function: P = 216
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Question:
There are two firms competing in a Cournot duopoly facing the following demand function: P = 216 8QD, where QD denotes the total demand in the market; and assume that each firm i has the following cost function: Ci(qi) = 24qi , where qi [0,) is the quantity produced by firm i. Assume further that this game will be repeated infinitely many times. Future payoffs are discounted by a common discount factor i = 0.75 for each firm i. Find a Nash equilibrium in the form of a grim-trigger strategy. Show and explain your work.
What is the best suggested agreement?
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