Consider a market for two differentiated products.

Consider a market for two differentiated products. Demand for good 1 is given by

D1(p1,p2)= 130− 4/3p1 + 2/3p2

and demand for product 2 is

D2(p1,p2)= 130− 4/3p2 + 2/3p1

where p1 and p2 are the prices of good 1 and 2. The cost function for both products and any firm producing them is C(q) = 15q. 

(a) [8 marks] Are the two goods complements or substitutes? Explain why.

(b) [10 marks] Suppose the two goods are produced by one firm. What are the optimal prices for the two goods? What is the total profit for the firm? [Hint: Make sure the demand of each good enters the monopolist’s profit function!]

(c) [10 marks] Suppose firm 1 produces good 1 and firm 2 produces good 2. Assume that the two firms compete in prices. Derive the reaction function of each firm and give the Nash equilibrium prices and profits.

(d) [12 marks] Finally, assume the two firms from (c) play the price game with an infinite horizon and a common discount rate of δ. Construct a subgame perfect equilibrium with trigger strategies in which both firms charge the prices you found in (b) and punish devia- tions by reverting forever to the Nash equilibrium prices in (c). Under which condition can the firms sustain this equilibrium?

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10