Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4. Consider a duopoly game in which two firms simultaneously and independently select prices. Assume that prices cannot be negative. Let p, denote the price

image text in transcribedimage text in transcribed
4. Consider a duopoly game in which two firms simultaneously and independently select prices. Assume that prices cannot be negative. Let p, denote the price set by firm1 and p2 let the price set by rm 2. Unlike Bertrand competition (see Chapter 10), we assume that products are differentiated. To be precise, once prices are set by both rms, consumers demand 10 191 + 292 units from the good that rm 1 produces, and they demand 10 192 + 191 units from the good that rm 2 produces. Assume that each rm must supply the number of units demanded. Also assume that the cost of producing q,- units is equal to % - q,- for rm 2' = 1, 2. (a) Write the payoff functions for both players (as functions of their strategies p1 and P2)- (b) Characterize each player's best response function (as a function of the price set by the other player). That is, characterize BR1(p2) and BR2(p1). Are prices strategic substitutes or complements in this game? (c) Can you determine the set of rationalizable strategies in this game by inspection of players\" bestresponse functions? What is the set of rationalizable strategies

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

What Every Environmentalist Needs To Know About Capitalism

Authors: Fred Magdoff, John Bellamy Foster

1st Edition

1583672419, 9781583672419

More Books

Students also viewed these Economics questions

Question

Why was humanistic psychology referred to as a third force?

Answered: 1 week ago

Question

8. How can an interpreter influence the message?

Answered: 1 week ago