As already argued demand intercepts and do not play

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Unformatted text preview: ning a company's best response. To clarify the intuition, suppose that b = 1. Then it must be the case that 1 > d + e. The polynomial in proposition 4 part ii) is positive for values of d = e between 0 and 0.434 this meaning that, provided the other two airlines do not form an alliance, it is a best response to create an alliance between the other two. The best response is not to form an alliance for d = e between 0.434 and 0.5. On the other hand, the polynomial in proposition 5 part ii) is positive for 16 ii) Airlines 3 and 4 profits with the alliance are lower than before if 8b2 (2b4 - values of d = e between 0 and 0.472 this meaning that, provided that there is an alliance, the rivals' best response is to form an alliance. There are other combinations of values but the next proposition just collects the cases when d = e. Proposition 6 i) No alliances will occur in equilibrium for d = e (0.472, 0.5). ii) Both alliances take place in equilibrium for d = e (0, 0.434]. iii) No alliances and both alliances are equilibria for d = e (0.434, 0....
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This note was uploaded on 05/12/2010 for the course MAN 6721 taught by Professor Kraft during the Spring '10 term at University of Florida.

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