2 NONCOOPERATIVE EQUILIBRIA FOR A COLLUSIVE DUOPOLY WITH A FINITE LIFE-SPAN

This paper addresses the problem of maintaining collusion in a differe ntiated duopoly with a finite lifespan. Using a trigger strategy devis ed by FRIEDMAN [1985], we identify two necessary noncooperative equili bria, and show that when bath the prospective deviant and punisher are free to choose between price and output as their strategic variables the dominant noncooperative equilibrium is Cournot while the dominated noncooperative equilibrium is asymmetric in the two variables. We sho w that, under certain conditions on product substitutability, there ex ist plausible discount factors which will sustain collusion for almost the entire life of the cartel.