On a , , linear segment, two firms A and B selling the same good are located symmetrically at locations L and 1-L respectively, where L=0.2. Both firms have a marginal cost of zero. Consumers are distributed uniformly on the interval [0,1]. The market is of size 1. When buying from a firm located a distance d from them, at a price p, a consumer receives utility U = 10 - 2d - p. [Note that the disutility of transportation is linear in the distance.] Each consumer buys from one unit from the firm yielding the highest level of utility for them. Firms choose the price to charge simultaneously. In the Nash equilibrium, what price does Firm A charge? Enter below a numerical value. Round to the second decimal if necessary. (Hint: It may be helpful to draw the graph, and find the location x of the consumer indifferent between buying from A or B.)

On a , , linear segment, two firms A and B selling the same good are located symmetrically at locations L and 1-L respectively, where L=0.2. Both firms have a marginal cost of zero. Consumers are distributed uniformly on the interval [0,1]. The market is of size 1. When buying from a firm located a distance d from them, at a price p, a consumer receives utility U = 10 - 2d - p. [Note that the disutility of transportation is linear in the distance.] Each consumer buys from one unit from the firm yielding the highest level of utility for them. Firms choose the price to charge simultaneously. In the Nash equilibrium, what price does Firm A charge? Enter below a numerical value. Round to the second decimal if necessary. (Hint: It may be helpful to draw the graph, and find the location x of the consumer indifferent between buying from A or B.)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 4MC

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