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 units of the good that firm i produces. Assume that each firm's marginal cost is 3, and the payoff for each firm is equal to the firm's profit.

a)Writethepayoff functionsof thefirms (asafunctionof theirstrategies e1 and e2)

{Assume the constant c = 0}

b). Is this a game of "strategic complements" or "strategic substitutes"? (Show all your workings)

(3 Marks)

Solve the (pure-strategy) Nash equilibrium.