Even though they're separated, Paul and Camille decide to study a price-fixing agreement that will mutually benefit them. The idea is that they both agree to a price higher than the Bertrand equilibrium price, using the Grim Trigger strategy (if they detect a deviation from the agreed-upon price, they switch to playing the static Bertrand prices forever). What is the weakest assumption on the discount factor & e (0, 1) that supports the existence of a SPNE with collusion in this market (that is, a SPNE with a price strictly higher than the Bertrand equilibrium price from the previous question)?

Even though they're separated, Paul and Camille decide to study a price-fixing agreement that will mutually benefit them. The idea is that they both agree to a price higher than the Bertrand equilibrium price, using the Grim Trigger strategy (if they detect a deviation from the agreed-upon price, they switch to playing the static Bertrand prices forever). What is the weakest assumption on the discount factor & e (0, 1) that supports the existence of a SPNE with collusion in this market (that is, a SPNE with a price strictly higher than the Bertrand equilibrium price from the previous question)?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.8P

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