Bertrand’s original analysis predicts that the perfectly competitive price and output occur if there is more than one firm in a market. Assume firms A and B are Bertrand competitors making identical products at identical cost Ci = 150qi and facing inverse market demand P = 1000 – 0.1Q. Assume further that there are no capacity constraints, and that if the firms charge the same price, consumers split their purchases evenly between the firms. a. Assume A and B choose prices simultaneously but repeatedly, and that both adopt the Trigger strategy. Determine whether joint-profit maximizing is a sustainable equilibrium if the interest rate is 6% and there is a 35% probability of significant entry into the market that would eliminate future monopoly profits. b. How would your analysis change if there were three identical Bertrand competitors rather than two? Why?
Bertrand’s original analysis predicts that the
a. Assume A and B choose prices simultaneously but repeatedly, and that both adopt the Trigger strategy. Determine whether joint-profit maximizing is a sustainable equilibrium if the interest rate is 6% and there is a 35% probability of significant entry into the market that would eliminate future
b. How would your analysis change if there were three identical Bertrand competitors rather than two? Why?
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