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6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero fixed costs, and simply wish to maximize their own revenue. For a constant K >0, demand is q = K - p for the firm with the lower price and zero for the firm with the higher price, or q = 0.5(K - p) if both firms set the same price. When it matters, firms have a time discount factor 8.

6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero fixed costs, and simply wish to maximize their own revenue. For a constant K >0, demand is q = K - p for the firm with the lower price and zero for the firm with the higher price, or q = 0.5(K - p) if both firms set the same price. When it matters, firms have a time discount factor 8.

Computer Networking: A Top-Down Approach (7th Edition)
Computer Networking: A Top-Down Approach (7th Edition)
7th Edition
ISBN:9780133594140
Author:James Kurose, Keith Ross
Publisher:James Kurose, Keith Ross
Chapter1: Computer Networks And The Internet
Section: Chapter Questions
Problem R1RQ: What is the difference between a host and an end system? List several different types of end...
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6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero fixed costs, and simply wish to maximize their own revenue. For a constant K > 0, demand is q = K – p for the firm with the lower price and zero for the firm with the higher price, or q = 0.5(K – p) if both firms set the same price. When it matters, firms have a time discount factor 8. a. Find the unique NE prices and profits of the static game. b. Suppose there was only one firm who set monopoly prices, called pm. What would Pm be? Back to two competing firms. c. Suppose this game is repeated 10 times; describe the unique SPNE outcome. d. Suppose the game is repeated indefinitely. Describe SPNE strategies that would result in both players playing pm, given high enough 6. e. What is the lowest & can be for your strategy described in part (d) to work?
Transcribed Image Text:6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero fixed costs, and simply wish to maximize their own revenue. For a constant K > 0, demand is q = K – p for the firm with the lower price and zero for the firm with the higher price, or q = 0.5(K – p) if both firms set the same price. When it matters, firms have a time discount factor 8. a. Find the unique NE prices and profits of the static game. b. Suppose there was only one firm who set monopoly prices, called pm. What would Pm be? Back to two competing firms. c. Suppose this game is repeated 10 times; describe the unique SPNE outcome. d. Suppose the game is repeated indefinitely. Describe SPNE strategies that would result in both players playing pm, given high enough 6. e. What is the lowest & can be for your strategy described in part (d) to work?
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