almost complete information. Therefore, this paper seeks to explore whetherfirm actions in Market C exhibit the characteristics of tacit collusion.
Before examining the behaviors of each firm, it is important todetermine whether the characteristics of Market C are more or less likely tobreed collusive behavior. There are many factors that can push firms in oneway or the other and many of them will be touched on in this section.1.) In order to determine whether collusion is more or less attractive, anestimate of the discount factor (
) must be obtained using this equation:
is a measure of patience that each firm has. If
is high, then it meansthat firms are more patient and long-run potential gains will appear moreattractive than short-term gains. The reverse is true as well. As
falls,short-term gains become more attractive for the firm. Therefore, a higher
helps to facilitate collusion. Plugging in given variables while applying whatwe know about Market C a fairly decisive answer can be attained. We knowthat the interest rate
= .02, a relatively low number,
= 1 because theinterest rate was “per period” and firms interacted every period (about 3times per week), and the market growth (g) averages .381 for all 21 periodsof the game.
Furthermore, the probability of market continuation
= 1 until
Refer to “Profile of Market C” and “CSG Final Data.”