Industrial Economics

What happens in the Bertrand Game is firms have different technologies?

• The most efficient firm will become the monopolist, this is an incentive for firms in investing in R&D

• All firms will earn the same profit regardless of their technology

• Firms will collude to set prices higher than marginal cost

• The market will become perfectly competitive with no profits

Important formulas in Bertrand model with product differentiation

• qi = (a/(1+s)) - (pi/(1-s^2)) + (spj/(1-s^2))

• πBN = ((a - c)^2 (1 - s))/((1 + s) (2-s)^2)

• qi = (a/(1-s)) + (pi/(1+s^2)) - (spj/(1+s^2))

• πBN = ((a + c)^2 (1 + s))/((1 - s) (2+s)^2)

Economides and his consideration on the transportation cost function

• For n between [1, 1.25] the pure strategy Nash equilibrium in prices does not exist

• For n between (1.25, 1.66) the game has a unique SPE

• For n between [1.66,2] the game has a unique SPE in which firms locate in 0 and 1

• For n between (0, 1) the game has multiple Nash equilibria

What Salant says about horizontal mergers?

• Horizontal mergers are profitable if 80% of firms participate and always welfare decreasing.

• Horizontal mergers are profitable regardless of firm participation and increase social welfare.

• Horizontal mergers are beneficial for small firms and improve social welfare.

• Horizontal mergers are always profitable and do not affect social welfare.

Describe the Hotelling model, the outcomes and problems related

• Firms will locate in 0.5, where the average consumer lies

• Firms will always choose different locations to maximize market share

• Consumers are uniformly distributed in a circular space

• The model assumes perfect competition with zero costs

What is a game? And its elements?

• A game is a type of sport played outdoors.

• A game is a mathematical object that formalises strategic interactions between players.

• A game is a form of entertainment that requires no strategy.

• A game is a competition between teams with no defined rules.

What is the Bertrand critique to Cournot when it comes to consumers' demand?

• Cournot assumes firms implicitly know what comes into consumers' minds

• Bertrand assumes firms compete on price rather than quantity

• Cournot focuses on perfect competition

• Bertrand suggests that firms have no knowledge of consumer preferences

What happens if information is imperfect in game theory?

• Nash Equilibrium (NE) and Subgame Perfect Equilibrium (SPE) are the same.

• Players can always reach a dominant strategy.

• The game becomes non-cooperative.

• Payoffs become irrelevant.

The three main points related to product differentiation

• 1) How intensive is the incentive of differentiation for firms?

• 2) Excess differentiation in the Equilibrium point may decrease social welfare due to profits.

• 3) How many firms would enter the market in the long-run? Shall we expect excess entry?

• 4) The impact of product differentiation on consumer preferences.

What is Nash Equilibrium 1?

• Every player has no unilateral ex-post regret.

• Every player can change their strategy without affecting the outcome.

• Every player maximizes their own payoff regardless of others' actions.

• Every player has complete information about other players' strategies.