Bertrand competition with differentiated goods. Firms 1,2 with demand functions Q1 = 10 – 3P1 + 2P2 , Q2 = 10 – 3P2 + 2P1 and marginal costs C1 = 6, C2 = 4. i) Find the Nash Equilibrium prices, quantities and individual profits. ii) The firms agree to form a cartel. Find the prices, quantities, cartel profits and individual profits under the cartel agreement. iii) Which firm has a reason to suggest the cartel, and is the cartel sustainable or not? Depict and explain the cartel game in an appropriate way. If it is sustainable, explain. If no, explain and suggest a mechanism that can make it sustainable a) if the deal is for one period only b) if the deal is renewed each period over 5 periods.
Bertrand competition with differentiated goods. Firms 1,2 with demand functions Q1 = 10 – 3P1 + 2P2 , Q2 = 10 – 3P2 + 2P1 and marginal costs C1 = 6, C2 = 4. i) Find the Nash Equilibrium prices, quantities and individual profits. ii) The firms agree to form a cartel. Find the prices, quantities, cartel profits and individual profits under the cartel agreement. iii) Which firm has a reason to suggest the cartel, and is the cartel sustainable or not? Depict and explain the cartel game in an appropriate way. If it is sustainable, explain. If no, explain and suggest a mechanism that can make it sustainable a) if the deal is for one period only b) if the deal is renewed each period over 5 periods.
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.4P
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Bertrand competition with differentiated goods. Firms 1,2 with demand functions Q1 = 10 – 3P1 + 2P2 , Q2 = 10 – 3P2 + 2P1 and marginal costs C1 = 6, C2 = 4. i) Find the Nash
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