Answer to Question #161013 in Microeconomics for ore A omisore

Question

Consider a multimarket contact between 2 firms competing on price on 2 markets. The demand curve for each market is given by Q = 1 − P, where Q is the total demand and p is the market price. Marginal costs are zero for all firms. (a) Show that �3 ∗ = 0 for all firms enumerated by � is the Nash equilibrium for the oneshot game. From now on, assume that the firms compete for an infinite number of periods. Each firm’s discount factor is � ∈ (0,1). (b) Find the minimal discount factor that would sustain collusion for the case when all firms sell to all markets. (c) Find the minimal discount factor that would sustain collusion for the case when each firm is present in only one market. (d) Which type of collusion is easier to sustain? 

Answer 1

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