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Next: Result 2: Trigger Prices Up: Summary and Discussion of Previous: Summary and Discussion of

Result 1: The Pareto Optimal Reversion Length Is Long

After examining all 14 service areas, we found that in most of the service areas the discounted values of both firms always increase, but with decreasing increments, as we increase the reversion length (T) in months. However, we could not report on the discounted values for tex2html_wrap_inline361 . Instead, we report on discounted values using a large T=5000 months. We selected to report on values where the difference in discounted values is less than 1 U.S. dollar. That is, tex2html_wrap_inline367 U.S. dollar and tex2html_wrap_inline369 U.S. dollar. It can be observed in Table 4 that some service areas had a peak values at less than tex2html_wrap_inline361 . Service area A is one of these areas, that is T=1227 months. We have only reported on the Pareto optimal peaks and do no show suboptimal rises in values that are smaller than all future discounted values.

In the service areas where the model shows the Pareto optimal number of reversion periods for a service area was infinite, this implies that the firms actions would follow a grim strategy.gif A grim strategy would mean that in those service areas collusion between firms can never occur after one incident of the price dropping below the trigger price. However, the model also shows many suboptimal tuples both where the best tex2html_wrap_inline361 or where the best tex2html_wrap_inline381 . In suboptimal cases, collusive quantities should also be chosen as the best. In theory these outcomes should not be selected, because they are not Pareto optimal. But, in practise we can question if the firm is concerned with the difference in expected discounted values from the smaller reversion length. In summary, the response curves demonstrate each case where choosing collusive quantities is at least Pareto superior to choosing Cournot quantities.


next up previous
Next: Result 2: Trigger Prices Up: Summary and Discussion of Previous: Summary and Discussion of

Judith Molka-Danielsen
Wed Sep 10 14:34:53 CEST 1997