7ExOligopoly

# 7ExOligopoly - 3S03 INDUSTRIAL ORGANIZATION Instructor...

• Test Prep
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3S03: INDUSTRIAL ORGANIZATION Instructor: Laura Grigolon Office hours: Friday 10.00-11.00 1

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Cournot, Bertrand, Stackelberg, Multiperiod games 2
Exercise 1 Consider the general case of two identical firms each facing a demand curve p(Q) = a-bQ, where Q=q1+q2. Costs are C(q) =cq. Marginal costs are c. Parameters a, b, c are positive constants. What is the industry equilibrium output under: 1. Perfect competition/Bertrand 2. Stackelberg 3. Cournot 4. Cartel (Monopoly) 3

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Exercise 1 Solution 1. Perfect competition or Bertrand: Q = (a- c)/b 2. Stackelberg: Q = 3/4 * (a-c)/b 3. Cournot: Q = 2/3 * (a-c)/b 4. Monopoly / Cartel: Q = 1/2 * (a-c)/b 4
Exercise 2 Write down the 2 x 2 matrix representation of this game. Look for dominant strategies. The payoffs are 5 if both firms charge the high price and 0 for all other combinations of strategies. What are the best strategies for Player 1 and 2 if each chooses between setting a low price or a high price?

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• Fall '11
• demidova

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