Consider a situation where two firms who normally compete in prices decide to form a cartel....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider a situation where two firms who normally compete in prices decide to form a cartel. They implement a grim trigger pricing strategy where they each receive half of the monopoly profits when the collude, but if either defects (claiming all the monopoly profits for themselves), they revert back to the Bertrand equilibrium and earn zero profits forever after. Suppose now that this market is growing by a constant rate g every period. (a) If p = 0.4 for each firm, what is the minimum growth rate, g, required to sustain collusion? (b) If p = 0.8, for each firm, what is the minimum growth rate, g, required to sustain collusion? Can collusion be sustained if the market is shrinking in this case? Consider a situation where two firms who normally compete in prices decide to form a cartel. They implement a grim trigger pricing strategy where they each receive half of the monopoly profits when the collude, but if either defects (claiming all the monopoly profits for themselves), they revert back to the Bertrand equilibrium and earn zero profits forever after. Suppose now that this market is growing by a constant rate g every period. (a) If p = 0.4 for each firm, what is the minimum growth rate, g, required to sustain collusion? (b) If p = 0.8, for each firm, what is the minimum growth rate, g, required to sustain collusion? Can collusion be sustained if the market is shrinking in this case?
Expert Answer:
Related Book For
Posted Date:
Students also viewed these economics questions
-
Growth in online retail sales has been outstripping conventional sales in retail stores. This online sales growth might be enhanced significantly by the latest online sales phenomenon of mobile...
-
One factor that appears to impede growth in online sales is consumers' fear of receiving unsolicited e-mail after a purchase is made. Given that fear, should companies continue to use e-mail to...
-
Depreciation of an asset based on the number of hours of usage is a(n) replacement method accelerated method time-based method activity-based method
-
The table shows the fees for refund anticipation loans (RALs) offered by an online tax preparation firm. Find the annual rate of interest for each of the following loans. Assume a 360-day year. (A) A...
-
Explain the nature of a fiduciary duty and under what circumstances it arises.
-
The horizontal rigid beam ABCD is supported by vertical bars BE and CF and is loaded by vertical forces P1 = 400 kN and P2 = 360 kN acting at points A and D, respectively (see figure). Bars BE and CF...
-
The brass rod is fixed at one end and free at the other end. If the length of the rod is \(L=2 \mathrm{~m}\), determine the greatest allowable load \(P\) that can be applied so that the rod does not...
-
A critical dimension of the service quality of a call center is the wait time of a caller to get to a sales representative. Periodically, random samples of three customer calls are measured for tune....
-
X1155: Throwing an Exception The method below takes in a String parameter representing a username. It should throw an Exception if the username is less than 3 characters long. The method correctly...
-
Kai is the president of Zebra Antiques. An employee, Reese Francis, is due a raise. Reeses current benefit analysis is as follows: Compute the benefit analysis assuming: 3 percent increase in pay. ...
-
Businesses of all sizes face a significant challenge regarding succession planning. Identifying and preparing employees for key leadership roles is challenging and can impact an organization's risk...
-
Does remanufacturing of a product indicate a cradle-to-cradle or a cradle-to-grave design model?
-
Identifying the correlations between customer perception and design specifications is the core of what analytical tool?
-
How does the concept of quality of design help explain why a product can be very successful in one country, but the same product can fail in another country's market?
-
In a recent survey, a 12-year-old gave a movie a score of 4, while a 55-year-old gave it a score of 7, a 32-year-old gave it a score of 6, and a 62-year-old gave it a score of 8. Based on these four...
-
Does a moving average forecast become more or less responsive to changes in a data series when more data points are included in the average?
-
Describe a budget and how it is important in planning and control. Explain how small and large firms benefit from the budgeting process. Explain participative budgeting and some of its advantages and...
-
Smthe Co. makes furniture. The following data are taken from its production plans for the year. Required: 1. Determine the hazardous waste disposal cost per unit for chairs and for tables if costs...
-
Walmart is contacting all of the manufacturers that supply its more than 4,000 U.S. stores with a logistics proposition: The worlds largest retailer wants to use its own fleet of trucks to pick up...
-
Discuss the relationship between channel management and logistics management. Is one of these areas more important than the other? Explain why or why not.
-
What is meant by using the marketing mix to gain the cooperation of channel members in implementing the manufacturers channel strategy?
-
Discuss the significance of discounting in business decision making.
-
What are the main components of corporate directional strategies?
-
Discuss the advantages of real options over other capital budgeting evaluation techniques.
Study smarter with the SolutionInn App