Econ 340 Extra Credit Collusion

Econ 340 Extra Credit Collusion - benefits a particular...

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Erik Widharma Extra Credit Question: Collusion Econ 340 – Spring 08 1. Collusive pricing is easier when firms interact over a number of periods because it is based on a non- competitive agreement between rivals that attempts to disrupt the market's equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage (maximize profits). Groups may also collude by sharing private information, allowing them to benefit from insider knowledge. Sharing private information is beneficial for firms over more than one period of time because it will
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Unformatted text preview: benefits a particular firm that currently has the competitive advantage, otherwise. When this fails to happen over a number of periods, it will leads firms into brutal competition over one to another (grim trigger strategy). 3. False. In one case, firms behave rationally in implementing price wars if their reason is to imply losses. Price wars become irrational if only one firm cheats, however it is a rational action to take as an intermediate solution for a low demand in the market, as long as firms will go back to collusive price after T period of time in price war....
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