1460p4 - Economics 1460 Industrial Organization Fall 2007...

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Economics 1460 Industrial Organization Fall 2007 PROBLEM SET 4 (due November 30) 1. (12.1) Consider a duopoly where horizontal price di/erentiation is impor- tant. Firms &rst simultaneously choose their product locations, then si- collude in prices in the second stage and anticipate this at the product- positioning stage. What do you expect this implies in terms of the degree of product di/erentiation? 2. We consider consumers located along a line, whose utility is given by U = V td ( x; i ) where V is the value of the product (net of the price), t the transportation cost and d ( x; i ) the distance between the consumer located at x and the i . should locate at 1 = 2 : V ± t= 2 , show that 1 = 2 . What happens if t= 2 > V ± t=
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1460p4 - Economics 1460 Industrial Organization Fall 2007...

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