Question: 1. Consider a duopoly game in which two firms simultaneously and independently select prices. Assume that prices cannot be negative. Let p, denote the price

1. Consider a duopoly game in which two firms simultaneously and independently select prices. Assume that prices cannot be negative. Let p, denote the price set by firm 2 1 and p2 let the price set by firm 2. Unlike Bertrand competition (see Chapter 10), we assume that products are differentiated. To be precise, once prices are set by both firms, consumers demand 10 - p, + p2 units from the good that firm 1 produces, and they demand 10 - p2 + pi units from the good that firm 2 produces. Assume that each firm must supply the number of units demanded. Also assume that the cost of producing q; units is equal to ? . q; for firm i = 1, 2. (a) Write the payoff functions for both players (as functions of their strategies p, and P2). (b) Characterize each player's best response function (as a function of the price set by the other player). That is, characterize BRI(p2) and BR2(p1). Are prices strategic substitutes or complements in this game? (c) Can you determine the set of rationalizable strategies in this game by inspection of players' best-response functions? What is the set of rationalizable strategies

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Consider a duopoly game in which two firms simultaneously and independently select prices. Assume that the prices are required to be greater than or equal to zero. Denote firm 1s price as p1 and firm...

4. Consider a duopoly game in which two firms simultaneously and independently select prices. Assume that prices cannot be negative. Let p, denote the price set by firm1 and p2 let the price set by...

Consider a duopoly game in which two firms simultaneously and independently select prices, e1 and e2. The firm's products are differentiated. After the prices are set, consumers demand is 13 ei + ej...

Consider the Bertrand oligopoly model, where n firms simultaneously and independently select their prices, p1 , p2 , . . . , pn, in a market. (These prices are greater than or equal to 0.) Consumers...

Brieflly solve the following question 7 Question 5 Consider the following situation. It is common knowledge between Players 1 and 2 that tomorrow one of three states will occur: a, b or c. It is also...

questions: Question 5 Consider the following situation. It is common knowledge between Players I and 2 that tomorrow one of three states will occur: a, b or c. It is also common knowledge between...

Consider a more general Cournot model than the one presented in this chapter. Suppose there are n firms. The firms simultaneously and independently select quantities to bring to the market. Firm is...

Game Theory 3. Consider a Bertrand duopoly setting in which two firms simultaneously choose prices p1, p2 E R+, at which to sell homogeneous goods.1 Firms' xed costs are zero and marginal costs...

Problem Set I Consider the following game played by two firms with the following payoffs (expressed in profits): you may assume that each firm chooses their pricing strategy (cooperate or compete)...

Solve the initial value problem y = y = 7xy + xy; y(0) = 2

Bright Bricks (Pty) Ltd (Bright Bricks) is a resident of South Africa. Bright Bricks supplies bricks and other building materials to customers and only makes taxable supplies. Bright Bricks has a...

In testing for differences between the means of two related populations, the null hypothesis is: (a) H0 : RD = 2 (b) H0 : R D = 0 (c) H0 : RD 0

Question 22: How can Airlines improve Humanitarian Logistics? Question 23 How has covid 19 affected the American consumers buying habits? How has it affected the buying habits in China? How has it...

3. How much information do we need to collect?

2. What types of information are we collecting?

5. How quickly can we manage to collect the information?