Two firms produce the same commodity, both with zero cost. The demand for this commodity is D(P) = 100−P. The two firms can each produce at most 50 units. They compete on price and rationing is efficient: if pi < pj then the demand that j faces is Dj(p) = D(pj) − qi, where qi is the quantity supplied by firm i. That is, the lower price firm gets to sell first. Is the price list p = (p1, p2) = (0, 0) a Nash equilibrium? Prove your assertion.

Two firms produce the same commodity, both with zero cost. The demand for this commodity is D(P) = 100−P. The two firms can each produce at most 50 units. They compete on price and rationing is efficient: if pi < pj then the demand that j faces is Dj(p) = D(pj) − qi, where qi is the quantity supplied by firm i. That is, the lower price firm gets to sell first. Is the price list p = (p1, p2) = (0, 0) a Nash equilibrium? Prove your assertion.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 2E

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