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Economics

Duopoly and Nash Equilibrium:

Two identical firms have MC = $3 and face a market demand function of: Q_D = 9 - P. there are no fixed costs.

a. Bertand: If the firms compete on the basis of (continuous) price, what is the Nash equilibrium if the game is played once? A finite number of times? Explain clearly.

b. If the Bertand game is indefinitely repeated, how can the firms sustain a cooperative Nash equilibrium? Calculate the temptation payoff and the value of δ*.

c. Stackelberg: If the firms compete on the basis of (continuous) quantity, what are the firms' reactive curve? Find the Nash equilibrium price and output and profit of the leader and the follower.

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9166489

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