- 1.7. In Section 1.2.B, we analyzed the Bertrand duopoly model with differentiated products. The case of homogeneous products yields a stark conclusion. Suppose that the quantity that con- sumers demand from firm i is a – p; when p¡ < Pj, 0 when p¡ > Pj, and (a − p;)/2 when p¡ = pj. Suppose also that there are no fixed costs and that marginal costs are constant at c, where c < a. Show that if the firms choose prices simultaneously, then the unique Nash equilibrium is that both firms charge the price c. -
- 1.7. In Section 1.2.B, we analyzed the Bertrand duopoly model with differentiated products. The case of homogeneous products yields a stark conclusion. Suppose that the quantity that con- sumers demand from firm i is a – p; when p¡ < Pj, 0 when p¡ > Pj, and (a − p;)/2 when p¡ = pj. Suppose also that there are no fixed costs and that marginal costs are constant at c, where c < a. Show that if the firms choose prices simultaneously, then the unique Nash equilibrium is that both firms charge the price c. -
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
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