Two (advertising-free) newspapers compete in prices for an infinite number of days. The monopoly pro

Two (advertising-free) newspapers compete in prices for an infinite number of days. The monopoly profits (per day) in the newspaper market are πM and the discount rate (per day) is δ. If the newspapers compete in prices, they both earn zero profits in the static Nash equilibrium. Finally, if the firms set the same price, they split the market equally and earn the same profits.

a. The newspapers would like to collude on the monopoly price. Write down the strategies that the newspapers could follow to achieve this outcome. Find the discount rates for which they are able to sustain the monopoly price using these strategies.

On Sundays, the newspapers sell a weekly magazine (that can be bought without buying the newspaper). The monopoly (competitive) profits when selling the magazine are also πM (zero).

b. For which discount rates can the monopoly price be sustained only in the market for magazines? (Write down the equation that characterizes the solution.) Compare the solution found in subquestion 1 and comment briefly.

c. For which discount rates can the monopoly price be sustained both in the market for newspapers and in the market for magazines? (Write down the equation that characterizes the solution.)

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