2011HW1

# 2011HW1 - the incumbent continues to monopolize the market...

This preview shows page 1. Sign up to view the full content.

Economics 210C Problem Set #1 (Due April 15) Spring 2011 1. Consider a market with an incumbent monopolist, which is currently produc- ing and a potential entrant, which may or may not choose to enter. Both the incumbent monopolist and the potential entrant have assess to a collection of production technology: Each technology in this collection is characterized by a constant marginal cost c and a fixed cost 15-4c for some c [1 , 3]. Each firm may choose any technology in this collection, but it can make this choice once only. Each firm’s choice of a technology is known to the other firm. There are two periods of production. In period 1, the incumbent monopolist selects a tech- nology and then produces. In period 2, the entrant decides whether to enter or not. When deciding to enter, the entrant chooses a technology and then plays the Cournot duopoly game with the incumbent. If the entrant does not enter,
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: the incumbent continues to monopolize the market. Assume that the entrant will enter only if it can make positive proﬁts, and that neither ﬁrm discounts its proﬁts in period 2. Assume further that market demand in each period is D ( p ) = 9-p . a. In the absence of the potential entrant, what technology would the incumbent select? With this technology of the incumbent, would the entrant enter? If yes, with which technology? c. Is there any technology the incumbent could take in period 1 that would deter entry by the entrant? If yes, what range of technologies can accomplish this? d. Given the threat of entry, what is the course of action for the incumbent, and how does the entrant respond in subgame-perfect equilibrium? 2. Exercise 12.C.4. 3. Exercise 12.C.9. 4. Exercise 12.D.4. 1...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern