DealingCartel - This example illustrates the workings of a...

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A Dealing Cartel Demand function D = A - B.a Supply Function S = B.b - C A= 200 B = 10 C= 120 Market Value = 16 Number of Market Makers = 20 Monopoly Ask = 18 Monopoly Bid = 14 Price Strategy For Securities Firm A Bid Ask Bid Ask Bid Ask 14 18 15 17 16 16 Bid 14 95000 5000 0 75000 0 0 Price Strategy Ask 18 for Bid 15 75000 0 71250 3750 0 0 Other Firms Ask 17 Bid 16 0 0 0 0 0 0 Ask 16 Critical Probability-Adjusted Discount Factor = ### To try different demand functions change cells C4, F4 or H4 To try different numbers of market makers change cell G6
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Unformatted text preview: This example illustrates the workings of a dealing cartel. The supply and demand functions determine the potential pricing strategies for the firms. The question then is what the discount factor has to be to sustain the collusive outcome. This will be affected by the number of market makers in the market....
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This note was uploaded on 12/27/2011 for the course ECON 468 taught by Professor Jean-francoishoude during the Fall '10 term at Wisconsin Milwaukee.

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