8)Consider a market in which 5 companies operate, whose marginal and average costs are equal to c. The demand function is given by P(Q)= 1-Q, where P is the price and Q indicates the total quantity. Assume that companies compete with Cournot in choosing production levels. Assume that the game is repeated an infinite number of periods, that companies adopt trigger strategies and that the punishment is represented by Nash Reversion. 1) What is the value of the discount factor that allows companies to sustain tacit collusion in a balanced situation? 2) Assume now that companies are able to discover the defection of a rival company with K periods of delay. What do you think the effect on the sustainability of collusion can be? 3) Do you think that in this market collusion would be more easily sustainable if the companies compete with Bertrand? 4) If in a price-competitive market (Bertrand) N symmetrical companies operate, what would be the critical value of the discount factor that would support collusion?

8)Consider a market in which 5 companies operate, whose marginal and average costs are equal to c. The demand function is given by P(Q)= 1-Q, where P is the price and Q indicates the total quantity. Assume that companies compete with Cournot in choosing production levels. Assume that the game is repeated an infinite number of periods, that companies adopt trigger strategies and that the punishment is represented by Nash Reversion. 1) What is the value of the discount factor that allows companies to sustain tacit collusion in a balanced situation? 2) Assume now that companies are able to discover the defection of a rival company with K periods of delay. What do you think the effect on the sustainability of collusion can be? 3) Do you think that in this market collusion would be more easily sustainable if the companies compete with Bertrand? 4) If in a price-competitive market (Bertrand) N symmetrical companies operate, what would be the critical value of the discount factor that would support collusion?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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