How would a change in the demand intercepts be represented on the diagram?

Suppose that two firms produce toothpaste, one a green gel and the other a white paste. To simplify the calculations, suppose that production is costless. Demand for product i is qi = ai − pi +
pj 2 . (15.29)
The positive coefficient on pj , the other good’s price, indicates that the goods are gross substitutes. Firm i ’s demand is increasing in the attribute ai , which we will take to be demanders’ inherent preference for the variety in question;
we will suppose that this is an endowment rather than a choice variable for the firm (and so will abstract from the role of advertising to promote preferences for a variety).

Transcribed Image Text:

FIGURE 15.4 Best Responses for Bertrand Model with Differentiated Products Firms' best responses are drawn as thick lines; their intersection (E) is the Nash equilibrium. Isoprofit curves for firm 1 increase moving out along firm I's best-response function. BR(P) 2 0 2 BR(P) 100 200 Pi P