Will the arrangement generate a successful cartel

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2.8 Vitamin Market Areas. Beta and Gamma produce vitamin A at a constant average cost of $5 per unit, Assume that low-price guarantees are illegal. Here are the possible outcomes: %u2022 Price fixing (cartel). Each firm sells 30 units at a price of $20 per unit. %u2022 Duopoly (No price fixing). Each firm sells 40 units at a price of $12 per unit. %u2022 Underpricing (one firm charges $20 and the other charges $12). The low-price firm sells 70 units and the high-price firm sells 5 units. %u2022 Suppose Beta chooses a price first, followed b Gamma, Draw a game tree for the price-fixing game and product the outcome. %u2022 Suppose the firms divide the market into two areas of equal size and assign each firm one of the areas. Each firm agrees to sell only in its assigned areas. Will the arrangement generate a successful cartel?

Reference no: EM13158617

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