Example 9.(Sequential Price Competition) There are two firms in a market, firm 1 and 2. Firm i = 1 or 2 has a per-unit cost 10. The demand for each firm is determined by: 9₁50 - 2p₁ + P2. 92 = 50+ P₁ - 2p2. The two firms choose their prices sequentially: firm 1 chooses P₁ at period 1. firm 2 chooses på at period 2. Solve for the subgame perfect N.E of (P₁, P₂).
Example 9.(Sequential Price Competition) There are two firms in a market, firm 1 and 2. Firm i = 1 or 2 has a per-unit cost 10. The demand for each firm is determined by: 9₁50 - 2p₁ + P2. 92 = 50+ P₁ - 2p2. The two firms choose their prices sequentially: firm 1 chooses P₁ at period 1. firm 2 chooses på at period 2. Solve for the subgame perfect N.E of (P₁, P₂).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Example 9.(Sequential Price Competition) There are two firms in a market, firm 1
and 2. Firm i = 1 or 2 has a per-unit cost 10. The demand for each firm is
determined by:
91 3 50 — 2рі + P2.
q2 = 50 + P1 – 2p2.
-
The two firms choose their prices sequentially: firm 1 chooses
P1 at period 1. firm 2 chooses P2 at period 2. Solve for the subgame perfect N.E of
(P1, P2).
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