Problem 14.5.9

Two pizza parlors are located within a few feet of each other on the Avenue of the Americas in New York City. Both were selling a slice of pizza for $1 (Matt Flegenheimer, "$1 Pizza Slice Is Back After a Sidewalk Showdown Ends Two Parlors' Price War," New York Times, September 5, 2012). Then, Bombay Fast Food/6th Ave. Pizza lowered its price to 79. The next morning, 2 Bros. Pizza dropped its price to 75, which Bombay quickly matched. These price cuts led to long lines of customers. However, both firms claimed that they were losing money. The two proprietors had a meeting on the sidewalk. According to one, they reached an agreement and raised their prices back to a dollar. Can the identical-goods, Bertrand, or cartel models be used to explain this series of events? Why or why not?

Problem 14.4.1

Duopoly quantity-setting firms face the market demand

p = 150 - q₁ - q₂.

Each firm has a marginal cost of $60 per unit.

1. What is the Nash-Cournot equilibrium?
2. What is the Stackelberg equilibrium when Firm 1 moves first? M