Consider two firms with differentiated products, whose demand functions are given by 41 = 2 – 2pı + P2, and 42 = 2 – 2p2 + P1, where q; and p; are their quantities and prices. Their constant marginal costs are given by: c and c2. Assume that c2 = 1 is known to both firms, but c1 is known only to firm 1. Firm 2 knows that c can be either 1.2, or .8, with equal probabilities. The firms compete in prices in a simultaneous move game. (i) Find the equilibrium prices, (ii) explain what happens if private information can be revealed costlessly.

Consider two firms with differentiated products, whose demand functions are given by 41 = 2 – 2pı + P2, and 42 = 2 – 2p2 + P1, where q; and p; are their quantities and prices. Their constant marginal costs are given by: c and c2. Assume that c2 = 1 is known to both firms, but c1 is known only to firm 1. Firm 2 knows that c can be either 1.2, or .8, with equal probabilities. The firms compete in prices in a simultaneous move game. (i) Find the equilibrium prices, (ii) explain what happens if private information can be revealed costlessly.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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