Question

usion (24 points) Two firms are playing a repeated Bertrand game infinitely, each with the same marginal cost 100. The market demand function is P-400-Q. The firm who charges the lower price wins the whole market. When both firms charge the same price, each gets 1/2 of the total market. I. Coll A. (6 points) What price will they choose in the stage (only one period) Nash equilibrium? What price will they choose if in the stage game (only one period) they collude with each other? B. (5 points) Describe the trigger strategy that can be used to support collusion in each period. C. (8 points) Suppose that these two firms use the same discount rate. Under what discount rate can the trigger strategy described in Part (B) actually support collusion in each period? D. (5 points) Please explain in detail the economic intuition behind your result in Part (C). 2 Second Price Auction& Google Search Auction (18 points) A. (11 points) There are two bidders, bidder 1 and bidder 2, bidding for one object. Their valuations of the object (Vi V2) are independent. Each one knows his own valuation but not the other's, and they simultaneously submit their bidding prices (bl-b2)-The one with the higher price wins the auction and pays the loser's price, the second highest price. In answering the questions below no detailed explanations are needed and you jiust need to onclusion Al (3 points) Whenever bidder 2's price is higher than bidder I's valuation, i.e., . b>vi, should bidder 1 try to lose or win? And what price bi should bidder I bid? A2 (3 points) Whenever bidder 2's price is lower than bidder l's valuation, i.e., brvi, should bidder l try to lose or win? And what price bi should bidder 1 bid? A3) (3 points) Whenever bidder 2's price is equal to bidder I's valuati to lose or win? And what price bi should bidder 1 bid? I's valuation, i.e., on, i.e., b Vi, should bidder 1 try A4 (2 point) In summary what should be bidder I's dominant bidding price strategy in this auction? B. (7 points) Google is selling two sponsored advertising spots on its search page to four bidders through its Ad Words auction system. The bidders' prices and quality scores are listed below Quality Score 20 Bidding Price Bidder 1 18 Bidder 2 Bidder 3 17 15 Find the final results for this auction. That is, who wins and who loses? If winning. which spot does it win and how much does it pay? 4 Bidder 4 3. Comment and Analysis: (16 points) Sometimes a manufacturer finds it's hard to induce its retailers to make good sales effort. For exampic, Toyota may find that its dealers in NYC are unwilling to make enough monetary contribution t local marketing campaign of its new car model. Please (1)list the reasons why in general it is difficult for retailers to make more or better sales effort; (2)give each reason you listed in part (1) a detailed explanation: (3)for each reason provide one practical solution and briefly explain why it might help 4. Vertical Relations (42 points) Suppose that a car dealer has a local monopoly in selling Volvo cars. It pays the wholesale pri monopolist Volvo for each car that it sells, and charges each consumer the retail price p. The demand function in the retail market is given by p-400q. The marginal cost of Volvo is 100 ce w to the A. (13 points) Suppose that the car dealer and Volvo work separately. What will be the Nash equilibrium? B. (5 points) Find the equilibrium profits for the dealer and Volvo. Find the equilibrium consumer surplus in this separation case. C. (5 points) Now suppose that Volvo bought the ownership of the car dealer. For the integrated fim what will be the equilibrium quantity q and the new retail price p? What will be the total profit for the integrated firm? What will be the consumer surplus? D. (7 points) Provide detailed economic reasons why for both the consumers and the firms integration case is better than the separation case? (Rather than compare the numbers, you have to show the economic reasons here.) E. (12 points) Retailers' Competition El. (6 points) Now suppose that Volvo has two dealers who compete in the one-period Bertrand competition (short term) in the retail market. All the other conditions remain the same as before. Findthe new Nash equilibrium in this game. E2. (6 points) We still have these two retailers competing with each other in the one-period Bertrand competition (short term) in the retail market, but now they both offer the customers the price match or the lowest price guarantee. What is the new Nash equilibrium? (You don '1 have to provide a rigerous answer in every step and an inuitive explanation willbe fin

Answer 1

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