Consider the following 2–firm (firm 1 and 2) model of Bertrand duopoly with differen- tiated products. Demand for firm i is q:(Pi, Pj) = a – Pi – bi.Pj costs are zero for both firms. The sensitivity of firm i's demand to firm j's price is measured by b;. (a) First suppose b1 # b2. Find the equilibrium prices pi and p2. (b) Deduce that if the two firms are identical, they choose the same price p where b = b, = bɔ. а 2+6

Consider the following 2–firm (firm 1 and 2) model of Bertrand duopoly with differen- tiated products. Demand for firm i is q:(Pi, Pj) = a – Pi – bi.Pj costs are zero for both firms. The sensitivity of firm i's demand to firm j's price is measured by b;. (a) First suppose b1 # b2. Find the equilibrium prices pi and p2. (b) Deduce that if the two firms are identical, they choose the same price p where b = b, = bɔ. а 2+6

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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