Find infinitely repeated model between two firms

Reference no: EM13212973

Consider the following infinitely repeated model between two firms. Each period, the firms earn profits of 10 if they successfully collude. If a firm deviates from the agreement, it earns 15 in the period in which it cheats. In each period that the firms compete noncooperatively, they each earn profits of 8 (that is, each firm earns a profit of 8 each period from playing the one-shot non-cooperative Nash equilibrium).

-Let $\delta$ be the discount factor of each firm. For what values of $\delta$ can the firms sustain collusion, using the threat of non-cooperative Nash equilibrium play every period forever as punishment?

Reference no: EM13212973

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