Question
The demand for two brands X and Y , are given by the following demands: QX =80-2PX +PY QY =80-2PY +PX Thefirms have identical cost
The demand for two brands X and Y , are given by the following demands: QX =80-2PX +PY QY =80-2PY +PX Thefirms have identical cost functions ,C(Qi)=10Qi i=X,Y Suppose the firms compete in prices.
a. What is the best response function for each firm (express firm i's optimal price as a function of firm j's price)? What is the equilibrium to the one-shot pricing game? What
are the profits of each firm?
b. Suppose the manufacturer of firm X could commit to setting PX before the manufacturer of Y could set PY. How would this change the equilibrium? What are the profits each firm make in this case? Should Firm X take advantage of this commitment possibility? Why or why not?
Step by Step Solution
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Step: 1
a Best Response Functions and Equilibrium in the OneShot Pricing Game To find the best response func...
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Step: 2
Step: 3
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Data Analysis And Decision Making
Authors: Christian Albright, Wayne Winston, Christopher Zappe
4th Edition
538476125, 978-0538476126
