Question: Consider a Cournot duopoly model with inverse demand given by P(Q) : a Q, in which rms (i : {1, 2}) compete on setting the


Consider a Cournot duopoly model with inverse demand given by P(Q) : a Q, in which rms (i : {1, 2}) compete on setting the quantities to produce (q1 and qg, Q : q1 + qg) of a homogeneous product. Both rms have total costs 02-(qi) = cqi, but demand is uncertain: it is high (a : aH) with probability 0 and low (a : cm) with probability 1 0. Furthermore, information is asymmetric: rm 1 knows whether demand is high or low, but rm 2 does not. All of this is common knowledge. The two rms simultaneously choose quantities. What are the strategy spaces for the two rms? Make assumptions concerning aH, (LL, 0, and c such that all equilibrium quantities are positive. What is the Bayesian Nash equilibrium of this game? (3 points)
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