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.1.aLet & be the discount factor. Find the condition on & such thatthe above strategy can indeed support the collusive equilibrium.Now suppose that Firm 2's marginal cost is $4, but Firm 1's marginal costremains at zero.1.bFind the condition on & under which Firm 2 will not deviatefrom the collusive equilibrium.1.cFind the condition onunder which Firm 1 will not deviatefrom the collusive equilibrium.1.dKnowing 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 ofdeviating from the collusive agreement would be smaller.)

The Nash equilibrium is a dynamic hypothesis inside game hypothesis that expresses a player can…

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 not exceed $10 and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume N/2 consumers buy from each firm. Assume zero production cost for both firms. A possible strategy that may support the collusive equilibrium is: Announce a 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. 1 a Let & be the discount factor Find the condition on & such that

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 not exceed $10 and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume N/2 consumers buy from each firm. Assume zero production cost for both firms. A possible strategy that may support the collusive equilibrium is: Announce a 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. 1 a Let & be the discount factor Find the condition on & such that

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.9P

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