Standard Bertrand and Cournot competition assumes simultaneous move. Suppose now that, because of size or industry...

 

Transcribed Image Text:

Standard Bertrand and Cournot competition assumes simultaneous move. Suppose now that, because of size or industry norms, one firm is always the first to set price or output, with a second firm observing that choice and then responding (i.e. sequential move). a) Suppose firms compete on quantity (Cournot). Would you rather want to be the first mover or the second mover, and why? Hint: consider whether setting quantity is a strategic complements or a strategic substitutes. b) Now suppose firms compete on price and sell differentiated goods (differentiated Bertrand). Does this change your answer, and why? Standard Bertrand and Cournot competition assumes simultaneous move. Suppose now that, because of size or industry norms, one firm is always the first to set price or output, with a second firm observing that choice and then responding (i.e. sequential move). a) Suppose firms compete on quantity (Cournot). Would you rather want to be the first mover or the second mover, and why? Hint: consider whether setting quantity is a strategic complements or a strategic substitutes. b) Now suppose firms compete on price and sell differentiated goods (differentiated Bertrand). Does this change your answer, and why?

Answer rating: 100% (QA)

Answer a In the Cournot competition where firms compete on quantity the strategic interaction involves choosing the quantity of output to produce In t... View the full answer