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Business Location Game: Two businesses would like to sell coffee in Rome, but the price of coffee is set at 1 euro by the government
Business Location Game: Two businesses would like to sell coffee in Rome, but the price of coffee is set at 1 euro by the government (this is approximately true, by the way). Assume the cost per unit is zero. They will both locate on a single plaza and offer the exact same product. But, people do not like walking; the farther you walk for the espresso the less utility you get from it. Specifically, the value of an espresso is given by 10-(x-biAZ-p, where x is your location, b is the location ofthe bar, and p is the price of the espresso. Assume customers are located uniformly along a segment of the (linear) plaza from zero to l, and assume one firm {BarUno) must locate between point 0 and point 'A, while the other (BarDue) locates between V; and 1. Assume 100 total customers, but assume that customers are infinitely divisible. 1) What will the profit of each business be if they both locate in the middle of the plaza? 2) What will the profit of each business be if they locate at the extreme ends of the plaza? 3) What location will they choose if they simultaneously select a location (Le. what is the Nash equilibrium)
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