2008SpringHomework3

2008SpringHomework3 - SABANCI UNIVERSITY ECON 201 A GAMES...

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SABANCI UNIVERSITY ECON 201 – A GAMES AND STRATEGY ASSIGNMENT 3 Date due: April 29, 2008, at 11.30 Late submissions will not be accepted Instructor: Mehmet Baç Total points: 100. 1. ( 20 points ). Two firms, Shell and BP are selling the same gasoline. Demand for this gasoline is given by P = 50 – Q/10 , where Q is the total gasoline sold by two firms. Shell’s total cost of selling Q S liters of gasoline is c S Q S whereas selling Q B units of gasoline costs BP c B Q B . The firms will simultaneously announce their prices, P S and P B . If they announce the same price, they share half-half the quantity demanded. Otherwise, the firm announcing the lower price supplies the entire quantity demanded at that price. The smallest money unit is one kuruş. Suppose that c S = 3.99 while c B = 4 TL. (i) (5 points) Show that P S = 5 and P B = 4.30 TL is not a Nash equilibrium. Who deviates and why? Can there be Nash equilibrium in which both prices are larger than 4 TL? (ii)
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2008SpringHomework3 - SABANCI UNIVERSITY ECON 201 A GAMES...

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