Suppose that demand is given by P = 130 - Q and marginal cost equals 10. Firms are Cournot competitors and play a supergame. The collusive agreement being considered is for each to produce half of the monopoly output. What is the critical discount factor to sustain collusion using grim punishment strategies if detection of deviation requires two periods?
61 See R. Blum, "Baseball's Big Spenders Hit with Tax," Globe and Mail 26 December 1997: A15; and H. Bodley, "Yankees Pay Most for ‘Luxury,'" Calgary Sun 26 December 1997: 93.