Topic 5 - Collusion - Fall 2011 Topic 5: Collusion Outline...

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Fall 2011 Topic 5: Collusion Outline Supergames and sustainability of collusion Readings ch. 10 (pp. 305-57) Lectures : 13 and 14 BU620 Topic 5: Collusion 1 of 9
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Fall 2011 Supergames and the sustainability of collusion Discount factor ( δ ), Discount rate ( r ), Rate of time preference ( ρ ), Prob. that game ends ( p ), growth rate ( g ) = =. [0, 1] 1+ + 2 +… = = , + 2 + 3 + … = = If a game is (potentially) infinitely repeated then … …collusion is a SPNE if punishment deters …which occurs if is sufficiently high. …otherwise sustainability requires lower prices. Grim : Collude if all have colluded in all previous periods, otherwise play one-shot Nash. Credible : Nash is best response to Nash Sustainable : , Issue: Renegotiation : Collude if all have colluded or punished in the previous period, otherwise punish. Credible : (pick largest q p ) Higher allows greater punishment (lower π p ) Sustainable : (closest to q m ) BU620 Topic 5: Collusion 2 of 9
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This note was uploaded on 10/16/2011 for the course ECONOMICS 620 taught by Professor Ziss during the Fall '11 term at Wilfred Laurier University .

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Topic 5 - Collusion - Fall 2011 Topic 5: Collusion Outline...

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