Question
Would love to get some explanation on these questions! Thank you in advance! Repeated games and tacit collusion: Consider a Cournot model with linear demand
Would love to get some explanation on these questions! Thank you in advance!
Repeated games and tacit collusion:
Consider a Cournot model with linear demand and identical firms: Q(P) = D P and TC(Q) = cQ with D > c.
a) Suppose that there are two firms and that the two firms can either choose the Cournot quantity, or choose half the monopoly quantity. Write down the 2X2 normal form game matrix for this game.
b) Using D = 6 and c = 2, suppose that the game is repeated infinitely and with a discount factor of B. For what values of B will it be possible to sustain collusion, if firms play a grim trigger strategy where a one-shot deviation is met with Cournot play forever?
c) Now consider the same game with 3 firms. For what values of B will it be possible to sustain collusion in this case?
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