Consider a duopoly where one firm moves first and chooses its capacity, following which, the second firm decides its capacity. Suppose the cost function of the firms are given by c1(q1) = q 2 1 c2(q2) = q 2 2 Also suppose that the demand in the market is given by P(Q) = 100 Q where Q = q1 + q2

(a) Find the Subgame perfect equilibrium of this game. Find the profit of both firms in the Subgame perfect equilibrium.

(b) Now suppose that both firms move simultaneously and choose their quantities. What is the Nash equilibrium of this game? What is the profit of each firm?

(c) Based on the above analysis, what is the value of first mover advantage?

(d) In which of the two situations are consumers better off?