Question: 5. Construct a game with joint decisions by augmenting the Cournot duopoly game in the following way: Suppose the two firms have a profit-sharing

5. Construct a game with joint decisions by augmenting the Cournot duopoly

5. Construct a game with joint decisions by augmenting the Cournot duopoly game in the following way: Suppose the two firms have a profit-sharing Exercises pact that is enforced by the government (legal collusion). First, the firms simultaneously select quantities, qi and q2, at a marginal cost of 10. The price is determined from the inverse demand curve, p = 100 qi [12 , and the total revenue p(ql + q2) is deposited into a joint bank account. Then the firms must negotiate over how to share the revenue. Model the negotiation as a joint decision over firm I's share of the revenue, m, so that agreement yields a payoff of m to firm I and p(ql + q2) m to firm 2. If they disagree then neither firm obtains any revenue, so firm I gets and firm 2 gets 10%.

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