Imagine rms rst choose capacities and then price

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Unformatted text preview: ce high costs of holding inventories — price should adjust more quickly than quantity. • Imagine firms first choose capacities and then price adjusts to equate supply and demand. • A model of oligopoly behavior M&S 452 — Strat and Org c 2008 Scott Schaefer T e e e e e e e e e e R Q∗ = 30 1 45 Q1 e e rr e rr e re rr er e rr rr e rr e r e rr 2 e rr e r rr e rr e r e rE e r rr e e e e e R1 Bertrand with Differentiated Products Q∗ = 30 2 45 rr Q2 6 5 • Rivals react aggressively to aggressive moves. • Applies most naturally to markets in which firms can steal some business from competitors by cutting prices. • Think of competitors producing imperfect substitutes. • Another model of oligopoly behavior M&S 452 — Strat and Org c 2008 Scott Schaefer M&S 452 — Strat and Org c 2008 Scott Schaefer 7 M&S 452 — Strat and Org c 2008 Scott Schaefer $25 $38.67 P2 ¡ ¡ ¡ ¡ ¡ ¡ ¡ ¡ $45 $54.67 ¡ P1 Firm 2’s Reaction Function ¨ ¨¨ ¨ ¡ ¡ ¨ ¨¨ Firm 1’s ¡¡ Reaction ¡¡ Function¡ ¡ ¨ ¡ ¨ ¡ ¨¨ ¨ ¡ ¨...
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