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Suppose firms compete by choosing price of their differentiated products. Assume that marginal costs of production are 0 and that demands for products 1 and
Suppose firms compete by choosing price of their differentiated products. Assume that marginal costs of production are 0 and that demands for products 1 and 2 are: Q1= 20 - 2P1 + 2P2 Q2= - 20 - 2P2 + P1 You are asked to (for numerical calculations, work to one decimal place) a) Calculate equilibrium prices and profits of each firm assuming that firm 1 chooses its price first and that once this is observed, firm 2 chooses its price. b) Compare results obtained in question a) with those that would have been obtained if two firms were to choose their equilibrium prices simultaneously. If you had a choice, which would you prefer between i) that game is simultaneous, ii) that game is sequential and ii) that game is sequential, and iii) that game is sequential and you move second. How much is advantage of moving first here worth, relative to moving at a second place? Give a brief intuitive explanation of result of moving first in this case
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