Question

Dr. Molly has been running a successful ambulatory surgery center (ASC) in Durham for many years, making a tidy profit that is much larger than the average ASC in other towns. Dr. Maddie was passing through and realized that Dr. Molly has been doing very well for herself, maybe too well, and is considering building her own ASC to compete with Dr. Molly's. The demand for ASC services in Durham is best represented by the demand function: QD = 1,000 - (1/10)P Dr. Molly's ASC has a total cost of $2000 per surgery. Dr. Maddie's ASC also has a total cost of $2000 per surgery. Dr.s Molly and Maddie also discount future earnings at a rate of 4%. Assume Dr. Maddie decides to enter the Durham market. Based on our discussion of cartels, what is the repeat game value of the cooperative solution to each of them?

Answer 1