Question

At a time when demand for ready-to-eat cereal was stagnant, a spokesperson for the cereal maker Kellogg’s was quoted as saying, “ . . . for the past several years, our individual company growth has come out of the other fellow’s hide.” Kellogg’s has been producing cereal since 1906 and continues to implement strategies that make it a leader in the cereal industry. Suppose that when Kellogg’s and its largest rival advertise, each company earns $0 billion in profits. When neither company advertises, each company earns profits of $8 billion. If one company advertises and the other does not, the company that advertises earns $48 billion and the company that does not advertise loses $1 billion. For what range of interest rates could these firms use trigger strategies to support the collusive level of advertising?

Answer 1

The deceitful degree of promoting for this situation would be the point at which no firm publicizes, along these lines acquiring a benefit of $8 billion each.

How about we speak to the necessary loan fee by I, so we need to discover the scope of I for which the deceitful level is feasible.

Till the time, both co-work both gain $8b benefit. When one of the organizations promotes (consequently misdirecting the other), it wins $48b for that year while different loses $1b, however so as to rebuff the misleading firm, the other firm beginnings publicizing for every single coming year and both end up with $0b.