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Unformatted text preview: Ex 58.2 (Cournot) Two firms, linear inverse demand function P=aQ=aq1q2. Firms have constant marginal costs, c1 and c2 Profit function for firm 1 is: Reaction Functions Graph reaction functions Algebra Ex 59.1 (Cournot 2) Linear inverse demand P=aQ Quadratic Cost function: C(qi)=qi2 What is profit function for firm 1? Bertrand model Each player does best response to others price. Constant marginal cost Buyers will purchase only from seller with lowest price. If prices are equal, demands are split. What can be an equilibrium? Ex 69.1 Bertrand with fixed costs Mixed Strategies Matching pennies Player 2s best response If Player 1 plays heads with probability p>1/2, what is Player 2s best response? What if p<1/2? What if p=1/2 Both players best responses Hide and seek game...
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 Fall '08
 Charness,G
 Game Theory, Oligopoly

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