Home » Question 1: Suppose that two firms produce differentiated products and compete in prices. As in class, the two firms are located at two ends of a…

Question 1: Suppose that two firms produce differentiated products and compete in prices. As in class, the two firms are located at two ends of a…

Question 1:

Suppose that two firms produce differentiated products and compete in prices. As in class, the two firms are located at two ends of a line one mile apart. Consumers are evenly distributed along the line.

The firms have identical marginal cost, $60.

Firm B produces a product with value $110 to consumers.

Firm A (located at 0 on the unit line) produces a higher quality product with value $120 to consumers.

The cost of travel are directly related to the distance a consumer travels to purchase a good. If a consumer has to travel a mile to purchase a good, they incur a cost of $20. If they have to travel x fraction of a mile, they incur a cost of $20x.

(a) Write down the expressions for how much a consumer at location d would value the products sold by firms A and B, if they set prices Pa and Pb?

(b) Based on your expressions in (a), how much will be demanded from each firm if prices Pa and Pb are set?

(c) What are the Nash equilibrium prices?

Question 2: Consider two firms selling identical products and competing in prices (Bertrand game). Thefirms compete against each other in a repeated game.Market demand is given by Q = 500 – P. Firms compete in prices and either face zero demand, half ofmarket demand or all of market demand depending on if their price is greater than, equal to, or less thantheir competitor’s price. Marginal cost is constant and equal to 100.Suppose that each firm sets the monopoly price if their competitor has never cheated.If their competitor has cheated, the firm will play the Nash equilibrium in the next period and forevermore.(a) If the discount rate is δ = 20%, will the firms tacitly collude?(b) Suppose in the previous problem the firms tacitly collude. When they are tacitly colluding, are theyare setting MR = MC? Briefly explain.(c) Suppose that firms only chose prices every other period. Would that make it easier or harder for firmsto cooperate? Briefly explain.(d) Finally, briefly explain the costs and benefits of a strategy that “forgives” a competitor for cheatingafter a certain amount of time.

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:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
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