Y5

4. Consider a situation where two rms who normally compete in prices decide to form a cartel. The},r implement a grim trigger pricing strategy where they each receive half of the monopoly prots when the eollude, but if either defects {claiming all the monopoly prots for themselves), they revert back to the Bertrand equilibrium and earn zero prots forever after. Suppose now that this market is growing by a constant rate 9 every period. (a) If p = 0.4 for each rm, what is the minimum growth rate, 9, required to sustain collusion? (b) If p = 0.3, for each rm, what is the minimum growth rate, g, required to sustain collusion? Can collusion be sustained if the market is shrinking in this case