Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel cost of 4 times the square of traveled distance. Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment. Suppose now that firms can price discriminate between consumers located in the interval 悯 (interval 1) and those located in the interval 瞓 (interval 2). Find equilibrium prices of firm A and B on the interval 1. Answer: equilibrium uniform price of firm A = profit of firm A under uniform pricing = equilibrium price of firm A on interval 1 = equilibrium price of firm B on interval 1 = ✓
Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel cost of 4 times the square of traveled distance. Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment. Suppose now that firms can price discriminate between consumers located in the interval 悯 (interval 1) and those located in the interval 瞓 (interval 2). Find equilibrium prices of firm A and B on the interval 1. Answer: equilibrium uniform price of firm A = profit of firm A under uniform pricing = equilibrium price of firm A on interval 1 = equilibrium price of firm B on interval 1 = ✓
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
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