Consider two firms producing homogeneous goods and choosing prices in each period for an infinite number...

  

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Consider two firms producing homogeneous goods and choosing prices in each period for an infinite number of periods. Each of two firms owns a share \sigma of its rival. This share is small enough for each firm to keep full control of its own activities and decisions: the rival is a minority shareholder, who is not represented in the board and receives just a share \sigma of the firm's profits. Is the likelihood of collusion affected by this cross-ownership? Show the solution with game theory. Consider two firms producing homogeneous goods and choosing prices in each period for an infinite number of periods. Each of two firms owns a share \sigma of its rival. This share is small enough for each firm to keep full control of its own activities and decisions: the rival is a minority shareholder, who is not represented in the board and receives just a share \sigma of the firm's profits. Is the likelihood of collusion affected by this cross-ownership? Show the solution with game theory.

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Answer Lets analyze the likelihood of collusion between the two firms using game theory specifically the repeated game framework Lets denote the two f... View the full answer