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(Repeated Bertrand Game) Two firms are playing an infinitely repeated Bertrand game, each with the same marginal cost 20. The market demand function is given by P=150-Q. The firm who charges the lower price wins the whole market. When they charge the same price, each gets 1/2 of the total market.
A. In the stage game (only one period), if the firms collude with each other, then what prices will they choose?
B. What prices will they choose in the stage Nash equilibrium (only one period)?
C. Describe the trigger strategy that can be used to support collusion in every period.
D. Suppose that the two firms use the same discount factor. Under what kind of discount factor can the trigger strategy described in (C) actually support collusion in every period?
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