Q4 Consider a market where 2 firms compete a la Bertrand.Market demand is q(pmin) = 12 - pmin, and marginal cost ofboth firms is c = 4. Suppose they compete for infinite periods.Consider the following statements• (1) The minimum discount factor to sustain cooperationbetween the firms (collusion) is 9/17.• (II) If the firms have different discount factors such that 81< 82, and we want to check if collusion is possible, then itis sufficient to show that firm 1 has no incentive todeviate.• (III) If & = 0.9, then there does NOT exist a SPNE whereboth firms set prices equal to marginal cost.O All options are incorrect.More than one option is correct.O Only I is correct.Only Il is correctOnly III is correct

To check the statements provided in the question we need to formulate a game with these two firms…

Consider a market where 2 firms compete a la Bertrand. Market demand is q(pmin) = 12 - pmin» and marginal cost of both firms is c = 4. Suppose they compete for infinite periods. Consider the following statements (1) The minimum discount factor to sustain cooperation

Consider a market where 2 firms compete a la Bertrand. Market demand is q(pmin) = 12 - pmin» and marginal cost of both firms is c = 4. Suppose they compete for infinite periods. Consider the following statements (1) The minimum discount factor to sustain cooperation

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.6P

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