Economics 2150A/B Lecture Notes - Lecture 13: Bertrand Competition, Best Response, Competitive Equilibrium

• School: Western University
• Department: Economics
• Course: Economics 2150A/B
• Professor: Kristin Denniston

Document Summary

Homework 3 has been posted: due wednesday march 5, covers chapter 13. Eg. the mining industry (selling a product identical to your competitor"s product) You set how much quantity you will produce based on what you think your competitor is producing: price setting models (bertrand) Bertrand said that firms don"t compete by setting quantities, but on undercutting each other"s prices. There are two different models: homogeneous product model, model where the products are different, stackleberg model. There is a leader in the industry and a follower. This is also a quantity setting model, but it is sequential (in the. 2b (the reaction function for firm 1: since all firms are identical, this is also the reaction function for any firm in this industry. X = (n-1)qi: firm 1 q1 = Q1* = : q = n x q1* = ( a b [(n 1) qi] ) competition result: with a smaller market, prices tend to be higher.