Consider a context with (≥ 3) firms involved in an oligopolistic market for a homogeneous product, the production cost being constantly equal to zero for all of them. The (inverse) demand function is linear, as given by


Professional Australia Essay Writers |

where xi is the production (and sales) of firm = 12, . . . , n. Further suppose that

(i) firms compete `a la Cournot over time, i.e., choose their outputs simultaneously

every period = 12, . . . ;

(ii) each firm,when making its choice at any particular t, knows only (besides

its own past choices) the prices materialized in past periodsτ <>t;

(iii) the firms are “infinitely patient,” i.e., their intertemporal payoffs coincide

with their limit average profits along the whole process.

Answer the following questions:

(a) What is the range of average profits sustainable at a subgame-perfect equilibrium?

(b) Compare your answer in (a) with the conclusion of Theorem 8.7.

(c) How are matters affected if the time horizon is finite?