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Homework answers / question archive / Show that tacit collusion is more likely to be stable when there are fewer firms using the basic n-firm Cournot model (i
Show that tacit collusion is more likely to be stable when there are fewer firms using the basic n-firm Cournot model (i.e. n identical firms, each with marginal cost of c, and fixed cost of zero, all facing inverse market demand given by p = a-bQ). How does the alpha required to sustain tacit collusion in equilibrium vary with n? HINT: You will first need to figure out what would constitute collusion and defection in this model! You already know that the "punishment" outcome is the n-firm Cournot equilibrium. Figure out the rest of the elements of the alpha inequality, and then figure out how alpha varies with n.
The companies compete on the amount of output they will produce.the cournot competition is described as industry structure.
