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1Consider two firms who compete in Bertrand, with MC = 2 and demand equal to P = 20 ???? 2Q. (a) Suppose the firms decide to collude for a finite
1，Consider two firms who compete in Bertrand, with MC = 2 and demand
equal to P = 20 ???? 2Q.
(a) Suppose the firms decide to collude for a finite number of periods.
Would collusion be sustainable? Why?
(b) Suppose that the firms decide to collude for an infinite number of
periods, explain under what conditions over the discount factor is
collusion sustainable.
(c) Suppose that firms realize that it is to costly to punish forever
the opponent after a deviation and decide on a strategy in which
the punishment takes place for 2 periods, and then they revert to
cooperation. Would collusion be sustainable in this case? Under
what conditions over the discount factor?
