Homework Help is Here – Start Your Trial Now!
Math
Advanced Math
Exercise 2 - Entry with sunk costs and Cournot competition Consider two firms, 1 and 2, selling a homogeneous good with market demand p=1- Q, with Q=q1+q2 being the aggregate quantity. They are both considering entering the market. To do so, they would have to pay a fixed entry cost f<1/4. Firm 1 has marginal cost c1 (with 0

Exercise 2 - Entry with sunk costs and Cournot competition Consider two firms, 1 and 2, selling a homogeneous good with market demand p=1- Q, with Q=q1+q2 being the aggregate quantity. They are both considering entering the market. To do so, they would have to pay a fixed entry cost f<1/4. Firm 1 has marginal cost c1 (with 0

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
See similar textbooks
icon
Related questions
Question
Exercise 2 - Entry with sunk costs and Cournot competition Consider two firms, 1 and 2, selling a homogeneous good with market demand p=1- Q, with Q=q1+q2 being the aggregate quantity. They are both considering entering the market. To do so, they would have to pay a fixed entry cost f<1/4. Firm 1 has marginal cost c1 (with 0<ci<1/2) and firm 2 has marginal cost c2=0. The game is as follows. At stage 1, Firms 1 and 2 decide simultaneously whether to enter or not, and if they do they have to pay the fixed sunk cost f. At stage 2, Active firms decide the quantities qi (i=1,2) they want to bring to the market. Q1) Find the sub-game perfect Nash equilibrium solutions of the game. Q2) Discuss the role of sunk costs, and the role of the cost difference. Q3) Is it possible to have an equilibrium where the less efficient firm 1 enters and the more efficient firm 2 stays out? Why?
Transcribed Image Text:Exercise 2 - Entry with sunk costs and Cournot competition Consider two firms, 1 and 2, selling a homogeneous good with market demand p=1- Q, with Q=q1+q2 being the aggregate quantity. They are both considering entering the market. To do so, they would have to pay a fixed entry cost f<1/4. Firm 1 has marginal cost c1 (with 0<ci<1/2) and firm 2 has marginal cost c2=0. The game is as follows. At stage 1, Firms 1 and 2 decide simultaneously whether to enter or not, and if they do they have to pay the fixed sunk cost f. At stage 2, Active firms decide the quantities qi (i=1,2) they want to bring to the market. Q1) Find the sub-game perfect Nash equilibrium solutions of the game. Q2) Discuss the role of sunk costs, and the role of the cost difference. Q3) Is it possible to have an equilibrium where the less efficient firm 1 enters and the more efficient firm 2 stays out? Why?
Expert Solution
steps

Step by step

Solved in 2 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
Recommended textbooks for you
Advanced Engineering Mathematics
Advanced Engineering Mathematics
Advanced Math
ISBN:
9780470458365
Author:
Erwin Kreyszig
Publisher:
Wiley, John & Sons, Incorporated
Numerical Methods for Engineers
Numerical Methods for Engineers
Advanced Math
ISBN:
9780073397924
Author:
Steven C. Chapra Dr., Raymond P. Canale
Publisher:
McGraw-Hill Education
Introductory Mathematics for Engineering Applicat…
Introductory Mathematics for Engineering Applicat…
Advanced Math
ISBN:
9781118141809
Author:
Nathan Klingbeil
Publisher:
WILEY
Mathematics For Machine Technology
Mathematics For Machine Technology
Advanced Math
ISBN:
9781337798310
Author:
Peterson, John.
Publisher:
Cengage Learning,
Basic Technical Mathematics
Basic Technical Mathematics
Advanced Math
ISBN:
9780134437705
Author:
Washington
Publisher:
PEARSON
Topology
Topology
Advanced Math
ISBN:
9780134689517
Author:
Munkres, James R.
Publisher:
Pearson,
SEE MORE TEXTBOOKS