Question

Argue that the unique outcome to IEDS in this model is for both firms to price at 1 dollar.
There is a more general result about price competition that we have established in the course of the previous
five questions.

In any model of duopoly price competition with zero costs the IEDS outcome is the lowest price at
which each firm makes a positive profit, that is, a price equal to a dollar.
Let us investigate why price competition appears to be so beneficial for the customer! Suppose that our
earlier model is modified so that the demand curve is written more generally as
where D(p) is a downward sloping function, i.e., the quantity demanded at price (p - 1), D(p - 1), is larger
than the quantity demanded at price p, D(p). Denote the monopoly price pm and suppose, without loss of
generality, that it is 2 dollars or greater.

Answer 1

Answer)