This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Problemset 3 Due Tuesday November 8th before 5pm 1. Consider the infinitelyrepeated pricecompetition game where two firms make simultaneous choices of their monthly prices. Here the stagegame is the standard Bertrandmodel of price competition. Each of two firms chooses a price for the month of p t i 0, and the profits are given by: i ( p t 1 , p 2 ) = ( p t i c ) D i ( p t 1 , p t 2 ) where the demand for firms i s products in a particular month is given as a function of their own price p i and the competitors price p j is: D i ( p i , p j ) = a p i if p i < p j and p i < a , 1 2 ( a p i ) if p i = p j < a , if p i > p j or min { p i , p j } > a . Both firms care about the streams of revenue with discount factor 1 1+ r , where r > 0 is the interest rate. So given an infinite price history for both firms { ( p t 1 , p t 2 ) } t =1 , each firm ranks the history via: i ( braceleftbig ( p t 1 , p t 2 ) bracerightbig t =1 ) = summationdisplay...
View
Full
Document
This note was uploaded on 03/10/2012 for the course ECON 1200 taught by Professor Staff during the Spring '08 term at Pittsburgh.
 Spring '08
 Staff
 Game Theory

Click to edit the document details