Question

. Two firms sell an identical product and engage in simultaneous-move price competition (i.e., Bertrand competition). Market demand is Q = 20 – P. Firm A has marginal cost of $1 per unit and firm B has marginal cost of $2 per unit. In equilibrium, firm A charges PA = $1.99(…) and firm B charges PB = $2.00 A clever UNC alum has patented a cost-saving process that can reduce marginal cost to zero. The UNC alum is willing to license her invention to one (and only one) of the firms. She will invite the firms to bid for the license. The firms submit their bids simultaneously to the inventor. The firm with the higher bid wins the license and pays its bid, and the losing firm keeps its old technology and pays nothing. The firm that wins the auction gets MC = 0. The firm that loses keeps its original marginal cost (MCA = 1 or MCB = 2). After the auction, the firms engage in one additional round of price competition. a. What is the maximum each firm is willing to pay for the license? In other words, how much value does each firm get from winning the auction instead of losing it? Explain and/or provide sufficient calculations to support your answer. b. Which firm do you expect will win the auction? At what price (bid)? Assume that each firm is willing to pay (bid) a price that could be as high as its value from the license, i.e. the values you found in part (a), but each firm would prefer a lower price to win if possible.

Answer #1

According to BERTRAND MODEL there are two firms which are producing homogeneous product or identical product.Both are competing with price. They try to increase their sale with decrese in price.

Q=Q^{1}+Q^{2}

^{P1 =}F(P_{2})

P^{1}<P^{2} Q^{1}=Q

P^{1}>P^{2} Q=0 ,Q^{2}=Q

P^{1}=P^{2} Q/2 According to this model price is
variable ,if one firm will reduce the price other will also follow
the same.But they will not lower the price than MC. MC will never
become 0,so price will also be never equal to zero.so

when Q= 20-P

FIRM A Q=20-1.99=18.01

FIRM B Q=20-2= 18 SO The firm is having less price than A firm.so they are getting profit in duopoly model.

Hence,no any firm will get the auction with zero MC.

Two firms, A and B, engage in Bertrand price competition in a
market with inverse demand given by p = 24 - Q. Assume both firms
have marginal cost: cA = cB = 0. Whenever a firm undercuts the
rival’s price, it has all the market. If a firm charges the same
price as the rival, it has half of the market. If a firm charge
more than the rival, it has zero market share. Suppose firms have
capacity constraints...

Two firms control an industry and engage in Cournot competition.
The price elasticity of demand is -2.50. If one of the firms has a
constant marginal cost of $705.00 per unit and controls 75.00
percent of the industry, what is the equilibrium price? (Round to
two decimals if necessary.)

Suppose two identical firms are in Bertrand Competition with the
following market demand and marginal costs P = 124 − 6Q MC = 4
1 Assuming both firms collude what would the price, quantities
and (one period) profits be?
2 Assume both firms are colluding to raise the equilibrium
price. If one firm defected from (i.e. broke) their agreement how
much would they earn? (Assume the game was played once.)
3 Now assume the game is infinitely repeated and the...

Bertrand model:
Price competition in simultaneous move homogeneous product
duopolyó explain in words.
Consider the brick producers again. This time, each firm
simultaneously and independently picks the price. Since the
product is homogeneous, the consumer buys from the producer
o§ering at a cheaper price. The market demand curve
faced by the two firms is P = 1 - 0.00001 ( x + y), and costs
are C1 (x) = 0.04x and C2 (y) = 0.1y
where firm 1 produces x...

Two firms are involved in Bertrand competition. The marginal
cost for firm 1 and 2 are mc1=1 and mc2=0. As
usual, the consumers purchase only from the firm with a lower
price. If p1=p2, then each firm will sell to
50% of the consumers. Find any two Nash Equilibria of the game. And
explain why they are Nash Equilibria.

Two firms sell identical products and compete as Cournot
(price-setting) competitors in a market with a demand of p = 150 -
Q. Each firm has a constant marginal and average cost of $3 per
unit of output. Find the quantity each firm will produce and the
price in equilibrium.

Two firms are considering producing a new product, tempered
glass for the auto market. They will make the same product and face
the same demand curve, given by p = 100 − 4Q, where p is in dollars
per pound of glass produced and Q is thousands of pounds produced
per month. Firm 1 has marginal cost MC1 = $5 per pound,
while firm 2 has MC2 = $10 per pound.
If the firms engage in Bertrand price competition,
(a)...

Recently, I've posted a question that goes as follows
Two firms are involved in Bertrand competition. The marginal
cost for firm 1 and 2 are mc1=1 and mc2=0. As
usual, the consumers purchase only from the firm with a lower
price. If p1=p2, then each firm will sell to
50% of the consumers. Find any two Nash Equilibria of the game. And
explain why they are Nash Equilibria.
And the answer that I got went like this
To find the...

Problem 3 Suppose two firms are strategically and independently
deciding what price to set for their new brand of soda. Firm 1
(Super Soda) and Firm 2 (Fizzy Soda) are competing on price. There
are 1 million consumers who are willing to pay up to $3 per bottle
of Super Soda, and they are willing to pay up to $3 per bottle of
Fizzy Soda. However, consumers will all purchase Super Soda if
Super Soda chooses a price lower than...

Two firms compete in price in a market for infinite periods. In
this market, there are N consumers; each buys one unit per period
if the price does not exceed $10 and nothing otherwise. Consumers
buy from the firm selling at a lower price. In case both firms
charge the same price, assume N/2 consumers buy from each firm.
Assume zero production cost for both firms.
A possible strategy that may support the collusive equilibrium
is: Announce a price $10...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 24 minutes ago

asked 38 minutes ago

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago