Repeated games and collusion
a) What is the discount factor in the repeated game model? What are the 4 factors which determine that magnitude of the discount factor? Briefly explain why the discount factor has to be sufficiently high in order make collusion feasible.
b) Use the repeated game model to explain why collusion is more likely if there are few firms or there is multi-market contact.
c) In 1918 the U.S. congress passed a law allowing American firms to form export cartels. Empirical evidence suggests that cartels were more likely to be formed in industries where American exporters had a large market share, in capital-intensive industries, in industries selling standardized goods, and in industries that enjoyed strong export growth. Explain.