micro-fall2007-23

micro-fall2007-23 - Duopoly Collusion The setting is...

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Unformatted text preview: Duopoly Collusion The setting is identical to Cournot duopoly. The two &rms act as one: max x 1 ; x 2 π 1 ( x 1 ; x 2 ) + π 2 ( x 1 ; x 2 ) = [ a & b ( x 1 + x 2 ) & c ] ( x 1 + x 2 ) The collusion outcome: Quantities: x CO 1 = a & c 4 b , x CO 2 = a & c 4 b Price: p CO = a + c 2 Pro&ts: π CO 1 = ( a & c ) 2 8 b , π CO 2 = ( a & c ) 2 8 b Ani Guerdjikova ECON 313 Fall 2007 231 / 265 Duopoly Stability of collusive agreements Note that: Each duopolist has an incentive to deviate from the collusion strategy. Example Optimal deviation from the collusion strategy x CO 1 = x CO 2 = a & c 4 b ˆ x 1 = r 1 & x CO 2 ¡ = 3 8 a & c b Collusion is not an equilibrium. The only equilibrium is the Cournot equilibrium, ¢ x C 1 ; x C 2 £ . Ani Guerdjikova ECON 313 Fall 2007 232 / 265 Price Discrimination Price discrimination There are three types of price discrimination: 1 First-degree price discrimination: Ani Guerdjikova ECON 313 Fall 2007 233 ¡ 265 Price Discrimination Price discrimination There are three types of price discrimination: 1 First-degree price discrimination: Each buyer can be charged a di/erent price for each unit of the good she buys. Ani Guerdjikova ECON 313 Fall 2007 233 ¡ 265 Price Discrimination Price discrimination There are three types of price discrimination: 1 First-degree price discrimination: Each buyer can be charged a di/erent price for each unit of the good she buys. 2 Second-degree price discrimination: Ani Guerdjikova ECON 313 Fall 2007 233 ¡ 265 Price Discrimination Price discrimination There are three types of price discrimination: 1 First-degree price discrimination: Each buyer can be charged a di/erent price for each unit of the good she buys. 2 Second-degree price discrimination: Di/erent units of the good can be sold at di/erent prices ....
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This note was uploaded on 04/30/2008 for the course ECON 3130 taught by Professor Masson during the Fall '06 term at Cornell.

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micro-fall2007-23 - Duopoly Collusion The setting is...

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