Copy of 20 Oligopoly Exercise

Copy of 20 Oligopoly Exercise - SUMMARY OUTPUT Regression...

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SUMMARY OUTPUT Regression Statistics Multiple R 0.5323977 R Square 0.2834473 Adjusted R Square 0.2797632 Standard Error 2.5217499 Observations 392 ANOVA df SS MS F Significance F Regression 2 978.53803 489.26902 76.938498 7.01E-029 Residual 389 2473.7375 6.3592223 Total 391 3452.2755 Coefficients tandard Erro t Stat P-value Lower 95%Upper 95%Lower 95.0% Upper 95.0% Intercept -0.704291 2.1182647 -0.332485 0.7397024 -4.868971 3.4603896 -4.868971 3.4603896 SC Price -2.158877 0.6225499 -3.467798 0.0005834 -3.382861 -0.934894 -3.382861 -0.934894 HY Price 5.5687121 1.6028178 3.4743264 0.0005698 2.4174424 8.7199818 2.4174424 8.7199818
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SUMMARY OUTPUT Regression Statistics Multiple R 0.3124232 R Square 0.0976083 Adjusted R 0.0929687 Standard E 2.1496483 Observation 392 ANOVA df SS MS F Significance F Regression 2 194.43568 97.217838 21.038323 2.11E-009 Residual 389 1797.5643 4.620988 Total 391 1992 Coefficients tandard Erro t Stat P-value Lower 95%Upper 95%Lower 95.0% Upper 95.0% Intercept 4.569339 1.8057002 2.5305081 0.0117833 1.019186 8.119492 1.019186 8.119492 SC Price 0.5540851 0.5306884 1.0440875 0.2970933 -0.489291 1.5974615 -0.489291 1.5974615 HY Price -3.496552 1.366311 -2.559119 0.0108713 -6.18283 -0.810274 -6.18283 -0.810274
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Oligopolistic Pricing Exercise (Differentiated Bertrand Pricing)Michael Gustafson Kexiang Hu Team 1 In this exercise you will find optimal pricing strategies for Hogi Yogi and Smart Cookie, two local competitors who offer an ice cream cookie sandwich. You will use data from a demand survey to construct demand curves for each firm's sandwich product. Using demand curves and cost information, you will find each firm's reaction function. A reaction function specifies a firm's profit maximizing price as a function of their competitor's price. You will then solve these equations simultaneously to identify the unique Bertrand-Nash equilibrium in the pricing game. These are the mutual best response prices that the players should charge to maximize profits. (Please refer to the Rivalry in Oligopoly reading for a full description of Differentiated Bertrand competition). QUESTIONS 1. Using data from the survey below and Excel's regression feature, estimate the demand curve for each firm. Write down each firm's demand curve. (Please note: Average cost for SC and HY will be given in Step 5 below) 3. Now (partially differentiate or use spreadsheet methods to) find the Psc and Phy, respectively, that maximizes firm profit. Solve for Psc and Phy, but leave these as variables for now. These are the reaction functions, which represent a complete pricing strategy for each firm. 4 . If you did Steps 1, 2 and 3 correctly, you should have reaction functions as follows: 5. Now assume that the average cost for Hogi Yogi is $1.4 5 for an ice cream cookie and, given its greater scale, the average cost for Smart Cookie is $0.46. Plot the reaction functions in Psc, Phy space. They should cross at the mutual best response prices. (This is tricky!!) - Hint #1 - be sure to plot this so that Psc is on the horizontal axis.
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