Question
Consider two interrelated product markets 1 and 2 with the following inverse demand functions. p 1 =54-2q 1 +q 2 p 2 =54-2q 2 +q
Consider two interrelated product markets 1 and 2 with the following inverse demand functions.
p1=54-2q1+q2
p2=54-2q2+q1
Assume that there is no production cost.
Using the inverse demand functions derive the demand functions.
Suppose the firms simultaneously compete in prices. Use the inverse demand functions that you have derived in part (ii) to determine the best response functions. Are the prices strategic substitutes or complements? Explain your answer.
Determine the Bertrand equilibrium outcomes consisting of the equilibrium outputs, prices and profits of each firm.
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