0 Consider a Stackelberg duopoly, where Firm 1 (who moves first) and Firm 2 face market...
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0 Consider a Stackelberg duopoly, where Firm 1 (who moves first) and Firm 2 face market demand QD(P) = 1 - P. Marginal cost of each firm is constant and equal to zero. A) Find the equilibrium quantities and profits earned by each firm. B) Suppose that one more stage is added to the game: after Firm 1 has chosen its output q₁º and Firm 2 reacted by choosing its output q2, Firm 1 gets a chance to reconsider and change its output from q₁⁰ to q₁¹. Find the new equilibrium quantities and profits earned by each firm, compare them to the ones in (A) and explain the difference using the concepts of "credible promise/threat" and "first mover advantage" (BVDF, ch. 10, p.210). 0 Consider a Stackelberg duopoly, where Firm 1 (who moves first) and Firm 2 face market demand QD(P) = 1 - P. Marginal cost of each firm is constant and equal to zero. A) Find the equilibrium quantities and profits earned by each firm. B) Suppose that one more stage is added to the game: after Firm 1 has chosen its output q₁º and Firm 2 reacted by choosing its output q2, Firm 1 gets a chance to reconsider and change its output from q₁⁰ to q₁¹. Find the new equilibrium quantities and profits earned by each firm, compare them to the ones in (A) and explain the difference using the concepts of "credible promise/threat" and "first mover advantage" (BVDF, ch. 10, p.210).
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