part B Two multinational3. Dynamic Games of Industrial Organisationcompanies produce the same good. In the first period, firm 1 sells its prod-uct as a monopolist in Paris. In the second period, firm1 competes with firm 2in Berlin as a Cournot duopolist. There is no discounting between the two pe-riods. Firm 1 produces quantity xp (b) Now consider the case of sequential choice. Assume that firm 2 observesXp before making its production decision x, making this a dynamic gamebetween firm 1 and firm 2.i. :What solution concept should we use here?ii. :Write down the maximisation programmes for firm 1 andfirm 2 for their Berlin operations in this set-up, i.e. for Xg and x, re-spectively. Define clearly the profit function of each firm.iiiNow focusing on period 2 only, find the first order condi-tion with respect to xg for firm 1 and the first order condition withrespect to x, for firm 2.iv.rium values for x; and x; change with x;? Provide economic intuitionSolve for x; and x; as a function of x;. How do the equilib-for this.v. .. Express the Berlin profits of firm 1 as a function of x; anduse this to write the maximisation problem of firm 1 in the first period,when it decides production in Paris.

The Stackelberg model is a concept from game theory and economics that describes a strategic…

Two multinational Dynamic Games of Industrial Organisation companies produce the same good. In the first period, firm 1 sells its prod- uct as a monopolist in Paris. In the second period, firm 1 competes with firm 2 in Berlin as a Cournot duopolist. There is no discounting between the two pe- riods. Firm 1 produces quantity xp < c/a in Paris at cost cxp. Interestingly, in Berlin, firm 1 produces quantity xg at cost (c-axp)xg, where 0

Two multinational Dynamic Games of Industrial Organisation companies produce the same good. In the first period, firm 1 sells its prod- uct as a monopolist in Paris. In the second period, firm 1 competes with firm 2 in Berlin as a Cournot duopolist. There is no discounting between the two pe- riods. Firm 1 produces quantity xp < c/a in Paris at cost cxp. Interestingly, in Berlin, firm 1 produces quantity xg at cost (c-axp)xg, where 0

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

Chapter16: Government Regulation

Section: Chapter Questions

Problem 2E

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