Question

Problem 4. (True/False). For each statement, assert whether it is true of false and explain your answer 1. In a finitely repeated Pure (Homogeneous Goods) Betrand game there can be more than one Subgame perfect Nash equilibrium (SPNE) 2. It not possible to support a collusive outcome in a finitely repeated Pure Betrand game 3. In a sequential Bertrand game, the follower firm has a second mover advantage because prices are strategic complements

Answer 1

1. False. In pure Bertrand game, the choice variable is price. The tendency to under cut the competitor and appropriate the entire market restrict the rational players to deviate from marginal pricing policy. Thus even in finitely repeated games, another SPNE is not possible.

2. True. In Bertrand game, the players have pricing at marginal cost as their doMinant strategy while other prices are dominated. Thus any player has no tendency to deviate from marginal pricing strategy because a lower price will run them into losses while the higher price will make them loose their market share this reducing their profits. Thus collusion cannot be supported.

3) True. The strategic complements are those where the firm forces it's rival to charge the same price. Thus the price are strategic complements and the competing firms end up charging the same price. In a sequential Bertrand game the player moving second has the opportunity to observe the prices charged by the other firm and then undercut it and charge a lower price. Thus the second mover has advantage.