Consider classical price competition model (Bertrand) with marginal cost c>0 across all n firms. There is a unit mass of consumers and their willingness to pay is v. Now consider the "entry" stage of the game when each of the n firms may pay a fixed cost of f>0 to enter the market. If the firm chooses not to pay, their payoff is zero. On the second stage of the game firms play Bertrand competition as normal. Find all pure and mixed subgame-perfect equilibria of this game.

Consider classical price competition model (Bertrand) with marginal cost c>0 across all n firms. There is a unit mass of consumers and their willingness to pay is v. Now consider the "entry" stage of the game when each of the n firms may pay a fixed cost of f>0 to enter the market. If the firm chooses not to pay, their payoff is zero. On the second stage of the game firms play Bertrand competition as normal. Find all pure and mixed subgame-perfect equilibria of this game.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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