) The following provides information for a game. Firm A Firm B Low Price High Price Low Price (2, 2) (10, −8) High Price (−8, 10) (15, 15) Suppose the game is infinitely repeated, and the interest rate is 10 percent. The firms are allowed to collude and make joint decisions. Both firms agree to charge a high price, provided no player has charged a low price in the past. This collusive outcome will be implemented with a trigger strategy that states that if any firm cheats (by charging
) The following provides information for a game.
Firm A |
Firm B |
|
|
Low
|
High Price
|
Low Price
|
(2, 2) |
(10, −8) |
High Price
|
(−8, 10) |
(15, 15) |
Suppose the game is infinitely repeated, and the interest rate is 10 percent. The firms are allowed to collude and make joint decisions. Both firms agree to charge a high price, provided no player has charged a low price in the past. This collusive outcome will be implemented with a trigger strategy that states that if any firm cheats (by charging a low price), then the agreement is no longer valid and each firm may make their own independent decisions.
Will the trigger strategy be effective in implementing the collusive agreement? Please explain and show all necessary calculations
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