In the previous video we've looked at a very simplified version of the Diamond

Cartel. We've had South Africa and Australia as

the only two players in this game. And we said okay, well they repeat to set

prices or they repeat setting prices or quantities forever.

But there's a likelihood of P that there's going to be a market in the next

period, right? So that was all we looked at in

this in previous video. But, reality of course is going to

look slightly different because there are other factors that may affect

the likelihood of cooperation. So in this video we'll look at precisely

that. So just to recap, each country in our

previous model would cooperate this year if the payoff from cooperating is higher

than the payoff from deviating. So, the payoff from cooperating, just to

recap, it's half the monopoly profit, that's what you get each period.

And if you just continue doing that until the market disappears, the overall value

of this is going to be 1 divided by 1 minus p.

The payoff from deviating is $49 million, because you only get this deviating

payoff once. And after that, it's going to be

competition forever. Of course we know that p is the

probability that the game goes on, and if p is a small number,

so if p is very close to zero, then this would mean that this number, this goes

close to one, and therefore this gets close to 25 million, 50 million divided

by 2. So it's less likely that we'll cooperate

if the likelihood that the game goes on is very small.