Suppose that two identical firms in a homogeneous-product market compete in prices. The capacity of each firm
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Suppose that two identical firms in a homogeneous-product market compete in prices. The capacity of each firm is 3. The firms have constant marginal cost equal to 0 up to the capacity constraint. The demand in the market is given by Q (p) = 9 - p. If the firms set the same price, they split the demand equally. If the firms set a different price, the demand of each one of the firms is calculated according to the Efficient Rationing Rule. Show that p1 = p2 = 3 can be sustained as an equilibrium. Calculate the equilibrium profits.
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Related Book For
Industrial Organization Markets and Strategies
ISBN: 978-1107069978
2nd edition
Authors: Paul Belleflamme, Martin Peitz
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