2. Consider an infinitely repeated game in which, in each period, two firms with zero costs choose quantities and prices are given by: p1 = 1 - q1 - q2/2, p2 1 - q2 - q1/2. Firms have a common discount factor of 8 = 1/2. %3D a) Explain what a trigger strategy is and determine whether the firms can attain the joint profit maximising outcome in a subgame perfect equilibrium using trigger strategies. b) Explain what a stick and carrot strategy is and discuss whether it is possible to attain the joint-profit maximising outcome in a subgame perfect equilibrium using stick and carrot strategies.
2. Consider an infinitely repeated game in which, in each period, two firms with zero costs choose quantities and prices are given by: p1 = 1 - q1 - q2/2, p2 1 - q2 - q1/2. Firms have a common discount factor of 8 = 1/2. %3D a) Explain what a trigger strategy is and determine whether the firms can attain the joint profit maximising outcome in a subgame perfect equilibrium using trigger strategies. b) Explain what a stick and carrot strategy is and discuss whether it is possible to attain the joint-profit maximising outcome in a subgame perfect equilibrium using stick and carrot strategies.
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.6P
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