Consider a duopoly with differentiated goods in which firms, Ask an Expert

Economics

Consider a duopoly with differentiated goods in which firms choose prices sequentially. Suppose firm 1 chooses its price p1 first. Then, having observed p1, firm 2 chooses its price, p2. Once both prices are set, consumers demand 10−p1 +p2 units from the good produced by firm 1, and 10 − p2 + p1 units from the good produced by firm 2. Answer the following:

(a) Find the subgame perfect Nash equilibrium (SPE) in this game.

(b) Suppose firms move simultaneously instead of sequentially. What would the Nash equilibrium be? Compared with the SPE of the sequential game, are firms better or worse off if they move sequentially or simultaneously?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91843932

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