Question

Collusion
Consider two firms producing homogenous goods and choosing prices in each period for an
infinite number of periods. Each of the two firms owns a share α of its rival. This share is small enough for each firm to keep full control of its own activities and decisions: the rival
is a minority shareholder, who is not represented in the board and just receives a share α of
the firm’s profits. Write the no deviation condition for collusion under trigger strategies and
discuss how the likelihood of collusion is affected by this cross-ownership.

Answer 1

Ans +hat Given chip eve of Cnoss oones e no Consisen both 2ghou +hen l os1neible aleing va Hatre bede r off diselubu in prices 40 Can ead tend +o lowe piCls Lence one shaxe and fntentiunalhy Marle el neease +he ivu 40 eau deviabny devtates the profit FO H (etsendire HonoPol present disouu value of coopenation -) A 0 t + Pvesent dist.ount vadue Cdeviat

2. D coll usion sustain 6 7 Ct- Caullli s1on vC vD