ECOS2201-prelect02 - S I D E R E M E N S E A D E M M...

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Unformatted text preview: S I D E R E · M E N S · E A D E M · M U T A T O University of Sydney ECOS2201 - Lecture 2 1 Firm Strategies • Value / Cost Strategies • Porter introduced two main strategies into the literature- The cost strategy , produce a low quality product at low cost- The value strategy , produce a high quality product at high cost 2 • In reality firms adopt the value (quality)/cost combination that maximises their profit. Does not have to be extreme. • Virgin Blue - low value customers, low cost • Qantas - high value customers, both business and tourist • Oz Jet - high value customers 3 • Business travellers need flexible flight schedules, but not enough of them to warrant frequent flights. Oz jet no longer flies. • This is why Qantas caters to both • Think about why Qantas and Virgin Blue have chosen different value/cost combinations 4 Quality Choice with Competition • Some game theory needed • A ‘best response’ is the optimal action to the actions of other players. • Assume two florists, Anne and Bob, sell bunches of flowers at a market and that they are homogeneous products. 5 • The market demand for bunches of flowers is p = 10- . 1 Q, where p is per-unit price when Q bunches are sold in the market. Let q a + q b = Q, where q a is Anne’s sales. • Assume the florists pay $2 for a bunch of flowers (this is their marginal cost (and average cost)). • Anne’s profit is Π a = (10- . 1 q a- . 1 q b- 2) · q a (1) 6 • Question: Find Anne’s best response function ? 7 • Strategies form a Nash Equilibrium if each strategy of each player is a best response to the equilibrium strategies of all other players 8 • Question: Find the Nash Equilibrium of the florist game 9 • A Nash Equilibrium in quantities is called a Cournot Equilibrium ....
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This note was uploaded on 02/16/2010 for the course ECOS Economics taught by Professor None during the One '09 term at University of Sydney.

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ECOS2201-prelect02 - S I D E R E M E N S E A D E M M...

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