EC332, Fall 2009, Prof. Jordi Jaumandreu Problem set #6 Product Di f erentiation and Advertising 1. Consider the model of di f erentiation on the line. The two f rms locations are f xed, and they are the two extremities of the segment. Transportation costs are linear in distance and equal to , and the distribution of consumers is uniform along the segment. The f rms have constant marginal costs 1 and 2 a. Compute the reaction functions = ( ) b. Infer the Nash-equilibrium prices c. Give the pro f ts as a function of the two marginal costs. 2. Two f rms with di f erentiated products compete in prices with demands 1 =1 − 1 +0 5 2 and 2 =1 − 2 +0 5 1 Suppose that both f rms can produce at the same constant marginal cost a .Drawthebestresponsefunct ions
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This note was uploaded on 11/09/2010 for the course CAS ec399 taught by Professor Tack during the Spring '10 term at BCUC.