HEAD and Dunlop set prices simultaneously for their respective tennis rackets. Let p₁ ≥ 0 denote the price set by HEAD and p220 the price set by Dunlop. Consumers demand 4-2p1+p2 billions of HEAD rackets and 4-2p2+P₁ billions of Dunlops's. Assume that the cost of producing a tennis rackets is 0, so the payoff of HEAD is v₁ (P1, P2) = P₁(4-2p₁+P₂), and the payoff of Dunlop is v2 (P1, P2) = P2(4-2p2+P1). (a) What is the best-response p₁ = BR1(p2) of HEAD to a price p2 chosen by What is the best-response p2 = BR₂(p1) of Dunlop to a price p₁ chosen by Dunlop? HEAD? Find the Nash equilibrium of game (b)
HEAD and Dunlop set prices simultaneously for their respective tennis rackets. Let p₁ ≥ 0 denote the price set by HEAD and p220 the price set by Dunlop. Consumers demand 4-2p1+p2 billions of HEAD rackets and 4-2p2+P₁ billions of Dunlops's. Assume that the cost of producing a tennis rackets is 0, so the payoff of HEAD is v₁ (P1, P2) = P₁(4-2p₁+P₂), and the payoff of Dunlop is v2 (P1, P2) = P2(4-2p2+P1). (a) What is the best-response p₁ = BR1(p2) of HEAD to a price p2 chosen by What is the best-response p2 = BR₂(p1) of Dunlop to a price p₁ chosen by Dunlop? HEAD? Find the Nash equilibrium of game (b)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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