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Nash equilibrium is

Nash equilibrium is

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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EXERCISE 75.1 (Competition in product characteristics) In the variant of Hotelling's model that captures competing firms' choices of product characteristics, show that when there are two firms the unique Nash equilibrium is (m, m) (both firms offer the consumers' median favorite product) and when there are three firms there is no Nash equilibrium. (Start by arguing that when there are two firms whose products differ, either firm is better off making its product more similar to that of its rival.)
Transcribed Image Text:EXERCISE 75.1 (Competition in product characteristics) In the variant of Hotelling's model that captures competing firms' choices of product characteristics, show that when there are two firms the unique Nash equilibrium is (m, m) (both firms offer the consumers' median favorite product) and when there are three firms there is no Nash equilibrium. (Start by arguing that when there are two firms whose products differ, either firm is better off making its product more similar to that of its rival.)
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