Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

تمرين 27

Consider the model of Bertrand competition with differentiated products from the text. Let the demand curves for firms A and B be given by Equation, 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
and for firm B is
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 prices?