Suppose that Etsy necklace vendors compete in a Bertrand market structure with differentiated products. Demand for style 1, produced by vendor 1, is given by where p₁ is price of style 1 and p₂ is the price of style 2, produced by vendor 2. Demand for style 2 is The costs of providing these necklaces are C₁ = q₁ and C₂ = 0.75q₂ respectively.
a. Identify vendor 1's profit function.
b. Identify vendor 2's profit function.
c. Identify vendor 1's reaction function.
d. Identify vendor 2's reaction function.
e. Identify the equilibrium price for each necklace.

Question

Suppose that Etsy necklace vendors compete in a Bertrand market structure with differentiated products. Demand for style 1, produced by vendor 1, is given by

where p₁ is price of style 1 and p₂ is the price of style 2, produced by vendor 2. Demand for style 2 is

The costs of providing these necklaces are C₁ = q₁ and C₂ = 0.75q₂ respectively.
a. Identify vendor 1's profit function.
b. Identify vendor 2's profit function.
c. Identify vendor 1's reaction function.
d. Identify vendor 2's reaction function.
e. Identify the equilibrium price for each necklace.

Quizplus · Accepted Answer

The Answer of Suppose that Etsy necklace vendors compete in a Bertrand market structure with differentiated products. Demand for style 1, produced by vendor 1, is given by where p₁ is price of style 1 and p₂ is the price of style 2, produced by vendor 2. Demand for style 2 is The costs of providing these necklaces are C₁ = q₁ and C₂ = 0.75q₂ respectively. a. Identify vendor 1's profit function. b. Identify vendor 2's profit function. c. Identify vendor 1's reaction function. d. Identify vendor 2's reaction function. e. Identify the equilibrium price for each necklace.

Suppose That Etsy Necklace Vendors Compete in a Bertrand Market