Problem 3 Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously. a) Derive the demand for each firm by identifying the location of the indifferent con-sumer for each price pair. Assume that all consumers know about both products. b) Consider again that consumers can only buy after receiving an ad. Suppose there is an avdertising company that offers the firms to coordinate the targeting of their ads. The company suggests to inform all consumers with a location between 0 and 0.4 the product of the firm at location 0 and to all consumers between 0.6 and 1 the product of the firm at location 1. Determine the optimal prices for both firms if they accept this offer. What are the resulting profits? ( please solve question b only)
Problem 3
Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously.
a) Derive the demand for each firm by identifying the location of the indifferent con-sumer for each price pair. Assume that all consumers know about both products.
b) Consider again that consumers can only buy after receiving an ad. Suppose there is an avdertising company that offers the firms to coordinate the targeting of their ads. The company suggests to inform all consumers with a location between 0 and 0.4 the product of the firm at location 0 and to all consumers between 0.6 and 1 the product of the firm at location 1. Determine the optimal prices for both firms if they accept this offer. What are the resulting profits?
( please solve question b only)
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