Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Cameron Skinner and Matt Deady Econ 368 Competitive Strategy Game

Cameron Skinner and Matt Deady Econ 368 Competitive Strategy Game

Ratings: (0)|Views: 19|Likes:
Published by mattster52

More info:

Published by: mattster52 on Dec 16, 2009
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOCX, PDF, TXT or read online from Scribd
See more
See less

12/15/2009

pdf

text

original

 
Cameron Skinner and Matt DeadyEcon 368Competitive Strategy Game Paper12/15/09
Investigation of Tacit Collusion and Predatory Capacity Buildingin the CSG
 This combined paper seeks to address two key issues that arose in theCompetitive Strategy Game. The first part will deal the potential for tacitcollusion in Market C, whereas the second part will focus on the predictionsof the predatory capacity building model for Market D. Both parts alsoprovide information on the strategy we undertook at the start of the gameand how it could have been improved.
PART 1Introduction
 Though discussing collusion and the market characteristics thatfacilitate it in class is one thing, determining whether these models actuallygive us reasonable predictions in a real world simulated game is another. Anumber of problems can arise in the real world, leading to cases in whichimportant variables must be estimated and wrong assumptions can spawndrastically different results. However, the Competitive Strategy Gameprovides a wonderful opportunity to examine the interactions of firms withmuch more transparency than might be available in real life. Though all of the firms may have had roughly the same amount of information about theircompetitors that would be available in a real world situation, the end of thegame provides an opportunity to regard interactions in retrospect with
 
almost complete information. Therefore, this paper seeks to explore whetherfirm actions in Market C exhibit the characteristics of tacit collusion.
Market Characteristics
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 (
δ
) must be obtained using this equation:
δ 
=
1(1
+
 f 
)(
h
)(1
+
g
)
δ
is a measure of patience that each firm has. If 
δ
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
δ
falls,short-term gains become more attractive for the firm. Therefore, a higher
δ
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.
1
Furthermore, the probability of market continuation
h
= 1 until
1
 
Refer to “Profile of Market C” and “CSG Final Data.”
 
the last round when
h
=
13
.
2
This is because the firms know that the gamewill definitely last at least 20 rounds and only then did uncertainty of marketcontinuation arise. With this knowledge, for periods 1 through 20, we canthen estimate that
δ 
=
1(1
+
.021)(1)(1
+
.381)
=
1.354
 and for period 21, we can estimate that
δ 
=
1(1
+
.021)(13)(1
+
.381)
=
.451
From these estimates, we can conclude that because
is so high for thefirst 20 rounds, patience would not be a limiting factor when it came to firmscolluding in Market C. On the other hand, because
δ
is much lower for the21
st
round, it would appear that collusion would be difficult in the final periodbecause firms would not have enough patience required. It is important tonote that this is just an estimate and the value we used for g would mostlikely be slightly off depending on each firm’s opinion of expected growth forthe future.2.) Barriers to entry can have a large effect on the attractiveness of collusionin markets because colluders will have a greater chance of keeping priceshigh without having to worry about the risk of a competitor entering the
2
 
Market continuation was determined using a random number generator and the gamewould end with any value below .333.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->