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Find Nash Equilibrium for C Suppose that there are only two firms selling books, Firm 1 and Firm 2. Let a; 2 0 be the

Find Nash Equilibrium for C

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Suppose that there are only two firms selling books, Firm 1 and Firm 2. Let a; 2 0 be the advertising level of firm i (2 = 1, 2). Suppose that the best responses of the two firms are a1 = 4- 4a2 + an a2 = 5 - 3a1. (a) For what values of a1 and a2 are these best responses strategic complements and/or strategic substitutes? [10%] (b) Provide an economic intuition for which the above advertising strategy of firm 1 above is a strategic complement for some values of a2 and a strategic substitute for some other values of a2. [5%] (c) Now assume that the best responses for the two firms are 01 = 4 - 4a2

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