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Suppose that two firms compete by choosing prices. Both firms produce identical products and have identical constant marginal costs, and no fixed costs. Assume we have the same rationing rule as the Bertrand model. That is, the lower priced firm captures the entire market; if both firms set the same price, they share the market equally. The firms play sequentially. First, firm 1 sets its price. Firm 1 is then committed to this price. Firm 2 then observes firm's price and chooses a price of its own. That is, first firm 1 sets its price, then firm 2 sets it price. Identify any subgame perfect Nash equilibria to this game. describe your reasoning.

Microeconomics, Economics

  • Category:- Microeconomics
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