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2) Repeated games and tacit collusion Consider the Cournot model with linear demand and identical firms that we derived in class. In this model, Q(P)=DP and TC(Q)=cQ, with D>c. a) Suppose that there are two firms and that the two firms can either choose the Cournot quantity, or choose half the monopoly quantity. Write down the 2-by-2 normal form game matrix for this game. (You may use the profits that we derived in class, but you will need to derive profits when one firm choose the monopoly quantity and the other firm chooses the Cournot quantity.) b) Using D=6 and c=2, suppose that the game is repeated infinitely often with a discount factor of . For what values of will it be possible to sustain collusion, if firms play a grim trigger strategy as in class where a one-shot deviation is met with Cournot play forever? c) Now consider the same game with 3 firms. For what values of will it be possible to sustain collusion in this case? 2) Repeated games and tacit collusion Consider the Cournot model with linear demand and identical firms that we derived in class. In this model, Q(P)=DP and TC(Q)=cQ, with D>c. a) Suppose that there are two firms and that the two firms can either choose the Cournot quantity, or choose half the monopoly quantity. Write down the 2-by-2 normal form game matrix for this game. (You may use the profits that we derived in class, but you will need to derive profits when one firm choose the monopoly quantity and the other firm chooses the Cournot quantity.) b) Using D=6 and c=2, suppose that the game is repeated infinitely often with a discount factor of . For what values of will it be possible to sustain collusion, if firms play a grim trigger strategy as in class where a one-shot deviation is met with Cournot play forever? c) Now consider the same game with 3 firms. For what values of will it be possible to sustain collusion in this case

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