1.cFind the condition on & under which Firm 1 will not deviatefrom the collusive equilibrium.Knowing that both firms' discount factor is 0.6, how shouldFirm 2 set its capacity constraint so that the collusive equilibrium can still besupported? (Hint: The idea here is that, by limiting its own output, Firm 2lets Firm 1 have a greater market share. As a result, Firm 1's gain of1.ddeviating from the collusive agreement would be smaller.) 1. Two firms compete in price in a market for infinite periods. In this market,there are N consumers; each buys one unit per period if the price does notexceed $10 and nothing otherwise. Consumers buy from the firm selling ata lower price. In case both firms charge the same price, assume N/2consumers buy from each firm. Assume zero production cost for both firms.A possible strategy that may support the collusive equilibrium is: Announcea price of $10 if the equilibrium price has always been $10; otherwise,announce the price as in Nash equilibrium of the one-shot Bertrand game.

its capacity constraint so that the collusive equilibrium can si 1? (Hint: The idea here is that, by limiting its own output, Firm 1 have a greater market share. As a result, Firm 1's gain of from the collusive agreement would be smaller.)

its capacity constraint so that the collusive equilibrium can si 1? (Hint: The idea here is that, by limiting its own output, Firm 1 have a greater market share. As a result, Firm 1's gain of from the collusive agreement would be smaller.)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.4P

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