Notes after prelim 2
July 29:
The value of the firm is not its historical cost, but its the cost of replacement. Really, the value of
corporation, including not just the physical capital, but also intellectual capital. The point is that
you dont have dir
Price discrimination: dierent price for same
goods/price dierence not justied by cost dierence
broken by resale restrictions and legal bans
Observable type: age, student, purchase place, etc.
Non-observable: self selection - menu pricing
Linear pricing: c
Benet: B(Q)
B (Q) = pD (Q) (inverse demand)
Cons. Surplus = B(Q) pQ
QD (p) (demand)
(Q) = pD (Q)Q c(Q)
(p) = pQD (p) c(QD (p)
max (Q) : (Q) = p (Q)Q + pD (Q) c (Q) = 0
M C = p + p (Q)Q
pM C
= p (Q) Q = price-cost margin
p
p
Cournot Duopoly Model: set q
p
73-365 Firms & Markets, Fall 2015
Homework 9: Innovation
Solution 20 points
1
Exercise 16.3
[15 points]
Regarding part c. Note that having identical rms does not imply that all (or any)
Nash equilibria have both rms adopting the same strategy. Patent race
73-365 Firms, Market Structure and Strategy, Fall 2015
Homework 7: Vertical relations
SOLUTION 20 points
1
Exercise 11.1
a. Second stage
[12 points]
[1.5 points]
OEM set their price p after they learn the w that was set by MS, so this is indeed
s
the seco
73-365 Firms & Markets, Fall 2015
Homework 2: Simultaneous-move games
SOLUTION
Consider an industry with two rms and the demand given by:
pD (Q) = A
QD (p) = A
Q = 10 Q
p = 10 p
1
Note that this means that total benet to consumers is B (Q) = 10Q 2 Q2 .
Th
73-365 Firms & Markets, Fall 2015
Homework 8: Dierentiation & Networks
Solution 20 points
1
Exercise 12.7, parts a & b only.
[10 points]
Consumer is "allocated" to a rm if (s)he bought from the rm before, and does
not need to pay switching cost if (s)he c
73-365 Industrial Organization, Fall 2015
Homework 5: Concentration and Protability
due Wednesday, October 28
20 points
Homework is due by the end of class (10:20); you can submit a paper version, or use
BlackBoard. You can work in groups of up to three p
73-365 Firms & Markets , Fall 2015
Homework 6: Pricing
SOLUTION 20 points
1
Block pricing
[6 points]
The industry consists of a single monopolist rm with constant unit cost c, and a
single group of consumers. Demand (and hence marginal benet) of this grou
73-365 Firms, Market Structure and Strategy Fall 2015
Homework 4: Collusion
SOLUTION 20 points
1
Temporary punishment equilibrium
[10 points]
We continue to investigate the collusion between two price-setting companies with
constant unit cost c (and no xe
73-365 Firms, Market Structure and Strategy Fall 2015
Homework 3: Sequential games
SOLUTION 20 points
1
Reverse Payments vs. Entry
[10 points]
The enclosed article describes a case where an incumbent (Shering) was accused by
anti-trust authorities of payi
73-365 Industrial Organization, Fall 2015
Homework 1: Monopoly
Solution - 20 points
1
Monopoly computations
[10 points]
Consider an industry for Slabs, a new type of portable communication device. The
inverse demand for Slabs is given by:
pD (Q) = A
(1)
b