26 Jul IS IT BETTER TO BE THE FIRST OR THE SECOND MOVER WHEN FIRMS CHOOSE PRICE?
Consider the model of Bertrand Competition with differentiated products. Let the demand curves from Show more Consider the model of Bertrand Competition with differentiated products. Let the demand curves from firms A and B be given by qa = (1/2) Pa + Pb qb = (1/2) Pb +Pa And let the firms marginal costs be constant given by Ca and Cb It can be shown that the best-response function for firm A is PA= And for firm B is PB = a) Graph the two best-response functions. Find the Nash Equilibrium assuming Ca = Cb = 0 algebraically and indicate it on the graph. b) Indicate on the graph how an increase in Cb would shift the best-response functions and change the equilibrium. c) Indicate on the graph where analogue to the Stackelberg equilibrium might be with firm A choosing price first and then firm B. Is it better to be the first or the second mover when firms choose price? Show less
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