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Consider the following Bertrand model: Firm 1 and Firm 2 are both producing chairs. For Firm 1, the marginal cost is 5. For Firm 2,
Consider the following Bertrand model: Firm 1 and Firm 2 are both producing chairs. For Firm 1, the marginal cost is 5. For Firm 2, the marginal cost is 10. The two firms' products are exactly the same so consumers buy from the firm whose price is lower. In case the prices are the same, consumers buy from Firm 2. There are 100 people and each of them will buy exactly one chair. Let p1 be Firm 1's price. Let p2 be Firm 2's price. The prices must be integers: So, a firm cannot choose its price to be 5.6 or 4.7. It has to pick an integer: 0, 1,2,3,4,... Is there a Nash equilibrium in this game? If not, why? Explain. If there is, write down (p1,p2) that is a Nash equilibrium, and explain why it is a Nash equilibrium
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