6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero fixed costs, and simply wish to maximize their own revenue. For a constant K >0, demand is q = K - p for the firm with the lower price and zero for the firm with the higher price, or q = 0.5(K - p) if both firms set the same price. When it matters, firms have a time discount factor 8.

Computer Networking: A Top-Down Approach (7th Edition)
7th Edition
ISBN:9780133594140
Author:James Kurose, Keith Ross
Publisher:James Kurose, Keith Ross
Chapter1: Computer Networks And The Internet
Section: Chapter Questions
Problem R1RQ: What is the difference between a host and an end system? List several different types of end...
icon
Related questions
Question
6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero
fixed costs, and simply wish to maximize their own revenue. For a constant K > 0,
demand is q = K – p for the firm with the lower price and zero for the firm with the
higher price, or q = 0.5(K – p) if both firms set the same price. When it matters, firms
have a time discount factor 8.
a. Find the unique NE prices and profits of the static game.
b. Suppose there was only one firm who set monopoly prices, called pm. What would
Pm be?
Back to two competing firms.
c. Suppose this game is repeated 10 times; describe the unique SPNE outcome.
d. Suppose the game is repeated indefinitely. Describe SPNE strategies that would
result in both players playing pm, given high enough 6.
e. What is the lowest & can be for your strategy described in part (d) to work?
Transcribed Image Text:6. Firms 1 and 2 compete Bertrand-style. They each have zero marginal costs and zero fixed costs, and simply wish to maximize their own revenue. For a constant K > 0, demand is q = K – p for the firm with the lower price and zero for the firm with the higher price, or q = 0.5(K – p) if both firms set the same price. When it matters, firms have a time discount factor 8. a. Find the unique NE prices and profits of the static game. b. Suppose there was only one firm who set monopoly prices, called pm. What would Pm be? Back to two competing firms. c. Suppose this game is repeated 10 times; describe the unique SPNE outcome. d. Suppose the game is repeated indefinitely. Describe SPNE strategies that would result in both players playing pm, given high enough 6. e. What is the lowest & can be for your strategy described in part (d) to work?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Recommended textbooks for you
Computer Networking: A Top-Down Approach (7th Edi…
Computer Networking: A Top-Down Approach (7th Edi…
Computer Engineering
ISBN:
9780133594140
Author:
James Kurose, Keith Ross
Publisher:
PEARSON
Computer Organization and Design MIPS Edition, Fi…
Computer Organization and Design MIPS Edition, Fi…
Computer Engineering
ISBN:
9780124077263
Author:
David A. Patterson, John L. Hennessy
Publisher:
Elsevier Science
Network+ Guide to Networks (MindTap Course List)
Network+ Guide to Networks (MindTap Course List)
Computer Engineering
ISBN:
9781337569330
Author:
Jill West, Tamara Dean, Jean Andrews
Publisher:
Cengage Learning
Concepts of Database Management
Concepts of Database Management
Computer Engineering
ISBN:
9781337093422
Author:
Joy L. Starks, Philip J. Pratt, Mary Z. Last
Publisher:
Cengage Learning
Prelude to Programming
Prelude to Programming
Computer Engineering
ISBN:
9780133750423
Author:
VENIT, Stewart
Publisher:
Pearson Education
Sc Business Data Communications and Networking, T…
Sc Business Data Communications and Networking, T…
Computer Engineering
ISBN:
9781119368830
Author:
FITZGERALD
Publisher:
WILEY