Does fluctuating demand facilitate collusion?, Financial Accounting

Assignment Help:

We consider two identical firms that produce the same good. The demand for that good is the function D(p) = 1 - p where p is the unit price. Firms incur no cost.

The competition game (simultaneous pricing competition) is repeated infinitely. The discount factor is δ.

We consider the following strategy for each firm:

At period t, firm i :

(i) sets the monopoly price if firm 2 sets the monopoly price at all the previous periods.

(ii) sets a price equal to 0 otherwise

1. What is the condition on δ that ensures that setting the monopoly price at each period is an equilibrium of the dynamic game?

We introduce fluctuations in the market demand. At each period the demand is, with equal probability, either 0 or 2(1 - p).

2. What is the new condition on δ that makes collusion on the monopoly price stable?


Related Discussions:- Does fluctuating demand facilitate collusion?

Joint Audit, Impact of joint Audit on financial reporting quality

Impact of joint Audit on financial reporting quality

Illustrate the budget constraints generate by programs, Consider a worker w...

Consider a worker who earns $8.00 per hour and has no other source of income.  Compare the following two transfer policies: i.  A negative income tax that sets the tax (per day)

Cash budget, Beginning balance 24,000 cash Sales 250,000 Gross profit 45% o...

Beginning balance 24,000 cash Sales 250,000 Gross profit 45% of sales Accounts receivable increase by 24,000 Accounts payable increased by 51,000 Inventory increased by 98,000 Sell

Peer review, Peer Review - Process by which an accounting firm's practice i...

Peer Review - Process by which an accounting firm's practice is evaluated for compliance with professional standards. Objective is achieved through the performance of an independen

Weighted average cost of equity, The discount rate used must normally refle...

The discount rate used must normally reflect the weighted average cost of equity and debt taking into account the systematic risk of the investment. A company's weighted average co

Legal aspects-autonomous branches, Legal Aspects There is no law relating...

Legal Aspects There is no law relating to branch accounts but examination problems under this heading are frequently linked to either partnership or company account problems. Ans

Bankrupt person-bankruptcy and liquidation, Bankrupt person A bankrupt ...

Bankrupt person A bankrupt is a person against whom an adjudication order has been made by the court primarily on the grounds of his insolvency. Any person (other than a body c

Debit and credit ., How can we differentiate debit and credit

How can we differentiate debit and credit

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd