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If two identical firms with zero cost compete in a market with inverse demand: p (q) = 12 - q.
If two identical firms with zero cost compete in a market with inverse demand:
p (q) = 12 - q.
(a)Suppose first that they compete by setting quantities, and that this game is infinitely repeated with a common discount factor (0,1) . For what values of d is it possible to sustain a grim-trigger strategy SPNE in which the firms equally split the monopoly profit?Assume now that the firms compete by setting prices. For what values of d is it possible to sustain a grim-trigger strategy SPNE in which the firms equally split the monopoly b) Suppose finally that the firms compete by setting prices, but instead use a forgiving trigger strategy in which they revert to cooperation after one period following deviation. Can this be sustained as a SPNE for any d= (0, 1)? Explain why the answers differ in questions (a), (b)
