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Suppose that Microsoft is the only producer of operating systems and Netscape is the only producer of Web browsers. Suppose also that nobody wants an operating system without a Web browser and nobody wants a Web browser without an operating system. Suppose that both firms produce at zero marginal cost and that the demand for a package consisting of an operating system and a browser is given by Q = 100 - P.

a. Suppose that Microsoft and Netscape take each other's prices as given (simultaneous pricing). What is the price of an operating system? What is the price of a browser?

b. Suppose instead that Microsoft first announces a price for its operating system; then Netscape takes this price as given and sets a price for its browser (sequential pricing). Now what is the price of an operating system? What is the price of a browser?

c. Suppose that Microsoft merges with Netscape. Now what is the price for a package consisting of an operating system and a browser?

d. Suppose instead that Microsoft sells consumers a package consisting of an operating system and Netscape browser and pays Netscape a royalty for each package that it sells. What royalty does Netscape charge and what price do consumers pay for the package?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9489522

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