Construct a game with joint decisions

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Reference no: EM131251498

Construct a game with joint decisions by augmenting the Cournot duopoly game in the following way: Suppose the two firms have a profit-sharing pact that is enforced by the government (legal collusion). First, the firms simultaneously select quantities, q₁ and q₂ , at a marginal cost of 10.

The price is determined from the inverse demand curve, p = 100 - q₁ - q₂ , and the total revenue p(q₁ + q₂) is deposited into a joint bank account. Then the firms must negotiate over how to share the revenue. Model the negotiation as a joint decision over firm l's share of the revenue, m, so that agreement yields a payoff of m - 10q1 to firm 1 and p(q₁ + q₂) - m - 10q2 to firm 2. If they disagree then neither firm obtains any revenue, so firm 1 gets -10q1 and firm 2 gets -10q2 .

Reference no: EM131251498

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