Consider a Cournot duopoly operating in a market with inverse demand P(Q) = Q, where Q = q1 + q2 is the aggregate quantity on the market. Both firms have total costs ci(qi) = cqi, but demand is uncertain: It is high ( = H ) with probability and low ( = L) with probability 1 . Furthermore, information is asymmetric: firm 1 knows whether demand is high or low, but firm 2 does not. All of this is common knowledge. The two firms simultaneously choose quantities.

i) What are the strategy spaces for the two firms?

ii.) Make assumptions concerning H , L, , and c such that all equilibrium quan- tities are positive. What is the Bayesian Nash equilibrium of this game?