Question
Two firms i = 1, 2 compete for 100 identical customers. Each firm i simultaneously chooses pi - the price and si - the quality
Two firms i = 1, 2 compete for 100 identical customers. Each firm i simultaneously chooses pi - the price and si - the quality of its product. Cost function for the firm i is linear with the unit cost 10 + 5si. Each customer can consume only one unit of product and his valuation is 1, 000 + si if he chooses from i. Note that if a customer chooses the product of the firm i, he cannot consume the product of the firm i. In case of indifference, 50 consumers buy from 1 and 50 from 2. a) Write the payoff functions for all players, b) Find all symmetric Nash equilibria, c) Assume now that in case of indifference 99 consumers buy from 1 and 1 from 2. Find all symmetric Nash equilibria.
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