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A duopolist with information Consider two rms with differentiated products, whose demand functions are given by: ql : a 2391 +p2, and (12 : 2

A duopolist with information

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Consider two rms with differentiated products, whose demand functions are given by: ql : a 2391 +p2, and (12 : 2 2p2 +101, where qz- and pi are their quantities and prices. Their constant marginal costs are given by: 01 : 1 and (:2 : 1. Assume that rm 1's intercepty a, is known only to rm 1. Firm 2 knows that 0; can be either 1.5, or 2.5, with equal probabilities. The rms compete in prices in a simultaneous move game. (i) Find the equilibrium prices] (ii) explain what happens if private information can be revealed costlessly

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