Intermediate Microeconomics · free preview
Collusion and Repeated Interaction
Repeated play lets punishment strategies sustain collusion, the joint monopoly 44 at 56 with 968 each, defection paying 1089 once before Cournot punishment 860 forever, patience above the threshold 0.53 making cooperation an equilibrium, the folk theorem's discipline.
1. The collusion prize
The collusion prize
2. The sustainability arithmetic
The sustainability arithmetic
3. The folk theorem and its reach
The folk theorem and its reach
4. Explicit versus tacit
Explicit versus tacit
5. The defection payoff
If your rival colludes at 22, what is your best defection and its profit?
6. The grim trigger
What does the grim trigger strategy prescribe?
7. The threshold
What determines the critical discount factor 0.53 in the worked case?
8. Leniency programs
How do antitrust leniency programs attack cartels?
9. The temptation gap
Compute the one-period defection gain, 1089 minus 968, and write the number.
10. The punishment gap
Compute the punishment gap, defection's 1089 minus the punishment's 860, and write the number.
11. A patient firm
The critical discount factor is 0.53. What if the firms discount at 0.6?
12. An impatient firm
The same cartel, but the firms discount at 0.4, below the 0.53 threshold. What happens?
13. The cartel's per-firm prize
What does each firm earn per period under the collusive split?
14. The per-period temptation gap
How much does collusion beat the punishment by, per period, per firm?
15. The per-period collusion premium
Compute collusive profit 968 minus the Cournot punishment 860.44, and write the number to two decimals.
16. The defector's quantity
With the rival colluding at 22, your best response is half of 88 minus 22. Write your defection quantity.
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