The two Firms intend to operate together in this market indefinitely, and at the

Question

The two Firms intend to operate together in this market indefinitely, and at the beginning of each day, both firms individually choose whether to continue charging the collusive price. A firm that undercuts in a given month will receive (almost) the entire monopoly profit in that period, but no profit in any future periods. If the probability that both firms will continue operating and charging the collusive price in the next period is 0.55, then the expected stream of profits for one firm in the collusive equilibrium is_______. Tacit collusion is therefore________in this scenario.

Explanation / Answer

In this example marginal cost is fixed at 1.2 price level. So if any of them charge 0.55 then both the firm will incurr lose in the future period. One firm will get monopoly advantage but since the rpice is much lower than the MC firm will lose money. So in this case tacit collusion through price is worse scenarios.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.