Two stores sell a homogeneous product. There are one L-stores and one H-stores. marginal cost is...

 

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Two stores sell a homogeneous product. There are one L-stores and one H-stores. marginal cost is given as follows: MCL = 0 and MCH = 2, respectively for L-store and H-store. 3. Each store's Each consumer buys only one unit. All consumers have sufficiently high willingness-to-pay, so everyone will purchase. Consumers know that different stores may charge different prices, but they don't know which store is L or H until they visit. Visiting the first store costs nothing, but visiting the second store requires search cost c, where c is distributed uniformly between 0 and y, that is, c~ U(0,7). Note that under uniform distribution with U(0, 7), Pr(c < a) = 4 (as long as a <y). You will answer the following questions to find Nash equilibrium prices, PL and PH, for L-store and H-store. For 3.1 and 3.2 below, assume that y = 1. 3.1. The first step is to find consumer's best search strategy given P and PH, where P < PH. Specifically, given P and PH, if consumers visit L-store, they will see PL, in which case they don't need to search anymore. But if consumers visit H-store first, they will observe P from H-store, and so they will search again as long as their search costs are lower than the expected benefit from search. (1) (5 point) What is qH, the fraction of consumers who buy from H-store? You should write qH in terms of PH and P. (2) (5 point) What is q1, the fraction of consumers who buy from L-store? You should write qL in terms of PH and Pt. Two stores sell a homogeneous product. There are one L-stores and one H-stores. marginal cost is given as follows: MCL = 0 and MCH = 2, respectively for L-store and H-store. 3. Each store's Each consumer buys only one unit. All consumers have sufficiently high willingness-to-pay, so everyone will purchase. Consumers know that different stores may charge different prices, but they don't know which store is L or H until they visit. Visiting the first store costs nothing, but visiting the second store requires search cost c, where c is distributed uniformly between 0 and y, that is, c~ U(0,7). Note that under uniform distribution with U(0, 7), Pr(c < a) = 4 (as long as a <y). You will answer the following questions to find Nash equilibrium prices, PL and PH, for L-store and H-store. For 3.1 and 3.2 below, assume that y = 1. 3.1. The first step is to find consumer's best search strategy given P and PH, where P < PH. Specifically, given P and PH, if consumers visit L-store, they will see PL, in which case they don't need to search anymore. But if consumers visit H-store first, they will observe P from H-store, and so they will search again as long as their search costs are lower than the expected benefit from search. (1) (5 point) What is qH, the fraction of consumers who buy from H-store? You should write qH in terms of PH and P. (2) (5 point) What is q1, the fraction of consumers who buy from L-store? You should write qL in terms of PH and Pt.

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Answer Explanation store mcL H Store MCH 2 Each unit one beys ... View the full answer