Microeconomics · free preview
Repeated Play and Tacit Cooperation
When rivals meet again and again, cooperation can be self-enforcing, the value of future business punishes today's defection, provided firms are patient and cheating is detectable.
1. The shadow of the future
The shadow of the future
2. Trigger strategies
Trigger strategies
3. What breaks the quiet life
What breaks the quiet life
4. The long view for consumers
The long view for consumers
5. The patience condition
In the repeated airline game, cooperating yields 60 each quarter forever, while defecting yields 90 once and 20 every quarter after, with the future discounted by delta. What makes cooperation sustainable?
6. Designing detectability
Why might a firm advertise a price-match guarantee, any rival's lower price refunded to its own customers, in a concentrated market?
7. The value of the future
A firm weighs defecting now for a one-time gain of 30 million against losing 40 million every quarter forever, discounted at delta equal to 0.9. The present value of that loss stream is 40 times 0.9 divided by 0.1. Compute it in millions and write the number.
8. The grim recipe
What is a grim trigger strategy in a repeated game?
9. What unravels cooperation
Which change most weakens tacit cooperation in a repeated pricing game?
10. The punishment stream's value
Cooperation earns 50 per quarter and grim-trigger punishment drops the defector to 20 per quarter forever. At a discount factor of 0.8, compute the present value of losing those 30 dollars per quarter forever after, and write the number.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free