Selling Imperfect Substitutes
Two firms each sell one variety of a good, with marginal cost 2. Firm i faces demand qᵢ = 20 − 2pᵢ + pⱼ (for pᵢ, pⱼ in the relevant range, so quantities are positive). The firms choose prices simultaneously. What is the price in the symmetric Nash equilibrium?
Related problems & prerequisites
Worth solving first
- Cournot Duopoly 3.0/10
- Bertrand Competition 3.0/10
- The Firm That Stays Out 3.0/10
Source: Original problem written for AxiomIQ; differentiated-product Bertrand model in the style of Singh and Vives (1984).