Consider the following infinitely repeated game. Each period, Firms 1 and 2 produce differentiated products and set prices simultaneously. The demand functions for each firm are: Q1 %3D 28- 5p1 + 3 р2 Q2- 28 - 5р2 + 3 р1 Assume that each firm faces a marginal cost of zero. Each firm as a discount factor given by 6, which is between zero and one. Identify the symmetric prices that maximize the combined profits of the two firms in a single period (assuming each good is sold), and the associated profits to each firm. For what values of 6, if any, is it a Subgame Perfect Nash Equilibrium for firms to collude at these prices using the Nash equilibrium of the one-shot game forever as punishment?

Consider the following infinitely repeated game. Each period, Firms 1 and 2 produce differentiated products and set prices simultaneously. The demand functions for each firm are: Q1 %3D 28- 5p1 + 3 р2 Q2- 28 - 5р2 + 3 р1 Assume that each firm faces a marginal cost of zero. Each firm as a discount factor given by 6, which is between zero and one. Identify the symmetric prices that maximize the combined profits of the two firms in a single period (assuming each good is sold), and the associated profits to each firm. For what values of 6, if any, is it a Subgame Perfect Nash Equilibrium for firms to collude at these prices using the Nash equilibrium of the one-shot game forever as punishment?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 1E

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