Consider the differentiated goods Bertrand price competition model where firms A and B produce similar goods and sell them at pA and pB. The demand for each firm’s product is given by qA =60−2pA +pB andqB =60–2pB +pA ,and there are NO costs of producing either good (all costs are 0). (a)Calculate the (Bertrand) equilibrium prices and the net profits of each firm (b) Now suppose that -instead of competing to maximize their own individual profits- the firms decide to “collude” and set prices pA and pB to maximize their joint profits (sum of their profits). What would be each firm’s optimal price and net profits? Compare these prices and profits with what you found in (a) (greater/smaller/the same?).
Consider the differentiated goods Bertrand
qA =60−2pA +pB andqB =60–2pB +pA ,and there are NO costs of producing either good (all costs are 0).
(a)Calculate the (Bertrand)
(b) Now suppose that -instead of competing to maximize their own individual profits- the firms decide to “collude” and set prices pA and pB to maximize their joint profits (sum of their profits). What would be each firm’s optimal price and net profits? Compare these prices and profits with what you found in (a) (greater/smaller/the same?).
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
