2. Four firms (A, B, C, and D) play a pricing game (i.e. Bertrand). Each firm (i) may choose any price Pi from 0 to ¥, with the goal of maximizing its own profit. Firms A and B have MC = 10, while firms C and D have MC = 20. The firms serve a market with the demand curve Q = 100 – P. All firms produce exactly the same product, so consumers purchase only from the firm with the lowest price. If multiple firms have the same low price, consumers divide their quantities evenly among the low-priced firms. Assume the firms choose price simultaneously. a. There are many equilibria in this simultaneous-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices. Now assume firm A chooses price first. Firm B observes this choice and then chooses its own price second. Firm C chooses price third, and firm D chooses price last. b. Again, there are many equilibria in this sequential-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices. c. Now assume firm B has MC = 15, and the order remains the same. Again, there are many equilibria in this sequential-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices.
2. Four firms (A, B, C, and D) play a pricing game (i.e. Bertrand). Each firm (i) may choose any
The firms serve a market with the
a. There are many equilibria in this simultaneous-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices.
Now assume firm A chooses price first. Firm B observes this choice and then chooses its own price second. Firm C chooses price third, and firm D chooses price last.
b. Again, there are many equilibria in this sequential-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices.
c. Now assume firm B has MC = 15, and the order remains the same. Again, there are many equilibria in this sequential-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices.
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