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Differentiated Products, price competition, simultaneous moves, two firms Consider the case of two firms (Firm 1 and Firm 2) that produce differentiated products (imperfect substitutes),

Differentiated Products, price competition, simultaneous moves, two firms

Consider the case of two firms (Firm 1 and Firm 2) that produce differentiated products (imperfect substitutes), compete in prices and have zero marginal and fixed costs. These firms face the following demand functions:

q1 = 24 - 5 p1 + 2 p2

q2 = 24 - 5 p2 + 2 p1

where q1, p1, q2 and p2 are the quantities and prices of goods 1 and 2. Assume firms choose prices simultaneously.

Find the Nash equilibrium.

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