Question

Suppose that Sir Howard Stringer, Sony’s CEO in 2009, and Steve Ballmer, Microsoft’s CEO in 2009, communicated a mutual interest in colluding with each other. Which pair of strategies are they likely to agree on? How would this type of behavior violate antitrust laws? Other than this antitrust legal issue, why would this outcome not be a Nash equilibrium if they did not collude?

Answer 1

If both firms collude then they have to agree on what price they will choose, how much level of output they will produce. Also they have to decide what pricing strategies they must adopt so that no new entrants could enter the market.

Antitrust laws check whether the firm's by colluding are not violating the competitive behaviour. Thus by colluding these firms are destroying competition in market .

Nasg equilibrium describes mutual best response of both the players. In this case each firmm has incentive to deviate and hence it won't be a Nash equilibrium.