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?

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