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Three oligopolistic banks operate in the loan market with the inverse demand function given by r (Q) = a-Q, where r is the interest rate per unit of loan and Q = 91+92 +93 and > 0 is the total amount of loans issued by bank i = 1,2,3. Also, a > 0 is a constant. The cost of funds for bank i is given by cɖ, where c = (0, a) is a constant. A bank's profit from loans is (r — c) qi • qi

Three oligopolistic banks operate in the loan market with the inverse demand function given by r (Q) = a-Q, where r is the interest rate per unit of loan and Q = 91+92 +93 and > 0 is the total amount of loans issued by bank i = 1,2,3. Also, a > 0 is a constant. The cost of funds for bank i is given by cɖ, where c = (0, a) is a constant. A bank's profit from loans is (r — c) qi • qi

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter15: Contracting, Governance, And Organizational Form
Section: Chapter Questions
Problem 1.3CE
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(a) Suppose the banks engage in Cournot competition. Find the symmetric Nash equilibrium. How much profit does each bank make?
(b) Now suppose banks compete in the following sequential manner: Bank 1 first chooses q1. Then banks 2 and 3 observe q1 and then simultaneously choose q2 and q3, respectively. Find the subgame perfect equilibrium. How much profit does each bank make here? Does bank 1 enjoy an advantage being the first mover?

Three oligopolistic banks operate in the loan market with the inverse demand function given by r (Q) = a-Q, where r is the interest rate per unit of loan and Q = 91+92 +93 and > 0 is the total amount of loans issued by bank i = 1,2,3. Also, a > 0 is a constant. The cost of funds for bank i is given by cɖ, where c = (0, a) is a constant. A bank's profit from loans is (r — c) qi • qi
Transcribed Image Text:Three oligopolistic banks operate in the loan market with the inverse demand function given by r (Q) = a-Q, where r is the interest rate per unit of loan and Q = 91+92 +93 and > 0 is the total amount of loans issued by bank i = 1,2,3. Also, a > 0 is a constant. The cost of funds for bank i is given by cɖ, where c = (0, a) is a constant. A bank's profit from loans is (r — c) qi • qi
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