Problem Set 3
Ben Polak
Econ 159a/MGT522a
Due Oct3, 2007
In class, we considered two models of duopoly competition: Cournot (quantity) competition
than in quantities, but the Cournot outcome seems more ‘realistic’ than the Bertrand outcome.
compete in prices rather than quantities. Unlike the Bertrand model, however, the products of
of my solving the model on the board, you will solve it for yourselves. But don’t panic: The
problem set will set will walk you through this step by step. Answer all the numbered questions
below.
The Game
.
We can think a ‘city’ as a line of length one.
{
p
1
and
p
2
respectively.
{
c
.
{
Potential customers are evenly distributed along the line, one at each point.
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 Fall '08
 BENJAMINPOLAK
 Game Theory, Bertrand

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