Suppose n firms decide whether to collude or not. Collusion comes at a cost: if the anti-trust regulator catches a firm colluding, it is forced to shut down operations. The probability that the regulator catches you depends on the number of firms in the market, and is equal to 1/n. That is, for a duopoly, the probability of being caught colluding is 50%. What is the minimum discount factor that would result in collusion in a market made of n=2 firms? Answer: 0.75 0.8 0.5 0.9

Suppose n firms decide whether to collude or not. Collusion comes at a cost: if the anti-trust regulator catches a firm colluding, it is forced to shut down operations. The probability that the regulator catches you depends on the number of firms in the market, and is equal to 1/n. That is, for a duopoly, the probability of being caught colluding is 50%. What is the minimum discount factor that would result in collusion in a market made of n=2 firms? Answer: 0.75 0.8 0.5 0.9

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 10MC

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