03 Jun Question 1. There are two identical rm which a
Question
1. There are two identical rm which are playing the innite horizon Bertrand
game in a market with the inverse demand function p = 16 3q. Firms marginal cost
of production is constant and equal to 4. The discount factor for the rms is the same
and equal to = .6.
a. What is the monopoly price, quantity and prot?
b. Using grim trigger strategy show that there is a SPNE for this game where they
always set the price equal to the monopoly price.
Now suppose there is a informational lag for the price change. In particular, think about
a situation in which a price change would not be observed (and therefore) punished by
the opponent until three periods after.
c. Show that in this case there is no SPNE for this game in which all rms set the price
equal to monopoly price at all the periods.
d. Why collusion is not possible here? Give your intuition.
Go back to the situation with no informational lag, but now suppose there are three
identical rms in the market who are playing Bertrand game.
e. Show that there is no SPNE for this game in which all the rms set the price equal
to the monopoly price at all the periods.
f. Why tacit collusion is possible in the rst case but not in the second? Interpret.
2. Consider innite horizon Bertrand game with market uctuation. So all the
assumptions which was introduced on the class is satised. In particular, rms nd out
the state of the market at the beginning of each period.
There are two rms in the market 1, 2. There are to states for the market which
are translated in two dierent inverse demand functions: p1 = 10 2q, and 10 4q.
Both rms have discount factor = .6.
a. Find out in which state market is in a better condition by comparing the monopoly
prot for these two markets.
b. Show that if the state of the market was always good, then using a grim trigger
strategy will imply a SPNE in which rms set the price equal to monopoly price.
c. Show that if the state of the market was always bad, then using a grim trigger
strategy will imply a SPNE in which rms set the price equal to monopoly price.
d. Show that there is no SPNE of this game in which game use monopoly price at all
the periods.
e. Intuitively explain why collusion is not achievable in the presence of uctuation in
the market?
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.