Suppose two firms produce differentiated goods and compete through prices. The demand for the good produced by firm i is
qi= Di(pi,pj)= 1-bpi-dpj
with 0?(pi,pj)= (pi-c)(1-bpi+dpj).
a) derive each firm's best response function. Are the two firms' actions strategic complements or substitutes?
b) Find the Bertrand equilibrium, and the equilibrium profit of each firm.