Find the sub game perfect nash equilibrium

Reference no: EM132111980

1. The Concentration Ratio and Herfindahl Index.

The figure below shows the Australian mortgage lending market share in 2007 and 2014:

Australian residential mortgage backed lending change in market share

(a) Compute the N-firm Concentration Ratio, CR(N), for N = 1, 2, 3, and 4 for the Australian residential mortgage market in 2007.

(b) Compute the N-firm Concentration Ratio, CR(N), for N = 1, 2, 3, and 4 for the Australian residential mortgage market in 2014.

(d) Show that the Herfindahl Index for the Australian residential mortgage market in 2014 is between 14.8% and 18.3%

(e) The article below provides the sales of new vehicles for major brands in Australia in 2017:

Article - VFACTS: INDUSTRY CLAIMS ANNUAL RECORD FOR 2017 by Mike Costello

First calculate the 4-firm Concentration Ratio, CR(4), for the Australian motor industry in 2017.

Based on CR(4), determine whether the Australian mortgage market or the Australian motor industry is more concentrated.

2. Product Differentiation and Price Competition: Apple and Samsung.

In many oligopolistic markets, firms offer similar but not exactly the same products (called differentiated products). Examples include products offered by Coles and Woolworths, Coke and Pepsi, Pizza Hut and Dominos, Apple and Samsung, Qantas and Virgin, just to name a few. In this exercise, we study product differentiation and price competition between Apple and Samsung in the market for smartphones.

Assume that the demand for iPhones is determined by the following equation.

Q^A(P A, P S) = 2800 - 2P^A + P^S,

where P A is Apple‘s price for an iPhone, and P S is Samsung‘s price for a Galaxy.

The demand for Samsung Galaxy phones is

Q^S(P A, P S) = 2800 - 2P^S + P^A.

Each firm has a constant marginal cost of $400.

Determine the optimal pricing strategy for each firm.

Calculate the equilibrium profits for each firm.

Consider the following two scenarios independntly

Scenario I. Trump Tariff

Recently the U.S. imposes a 10% tariff on imports of Chinese goods. Suppose the tariff applies to the iPhone. This raise the cost to Apple for the China-assembled smart phones into the United States. Accordingly, the tariff increases the marginal cost of the iPhone by $40. On the other hand, we assume that the tariff has no impacts on Samsung Galaxy, as Samsung makes over half its phones in South Korea and Vietnam.

Redo (a) and (b).

Based on your answers in (a)-(c), discuss how the Trump tariff affects (i) the prices of smartphones, (ii) the market share of each firm, and (iii) the profitability of each firm.

Scenario II. Research and Development

Suppose now each firm can make an investment in R&D to enhance its product features and differentiate the product from its rival. Denote by IA the amount of money Apple spends on R&D, and IS the amount of money Samsung spends on R&D. For simplicity, assume IA and IS admit the following two values: $0 and $100,000. Given (IA, IS), the demand for iPhones is determined by the following equation:

QA(PA; PS; IA; IS)=2800+(IA-IS)/500-2PA+PS

and the demand for Samsung Galaxy phones is

QA(PA; PS; IA; IS)=2800+(IS-IA)/500-2PS+PA

Consider the following two-stage game. In the first stage, Apple and Samsung simultaneously choose R&D spending IA and IS, respectively. In the second stage, after observing each other‘s investment in R&D in the first stage, Apple and Samsung simultaneously choose prices P A and P S, respectively.

Find the sub game perfect Nash equilibrium of this two-stage game.

Based on your answers in (a), (b) and (e), discuss how R&D on product differen- tiation affects (i) the prices of smart phones, (ii) the market share of each firm, and (iii) the profitability of each firm.

Reference no: EM132111980

Questions Cloud

Write a program that uses all of your functions : Write a program that uses all of your functions from above to carry out an RSA key generation, encryption, and decryption.

Develop a text-based interface that allows you to test : Develop a text-based interface that allows you to test the ATM and bank classes without being distracted by GUI programming

Write a program that will validate credit card transaction : Implement a C++ program that prompts the user for the details of a credit card transaction.

The first ten elements in the periodic table : Create a list of tuples that holds the information about the first 10 elements in the periodic table .

Find the sub game perfect nash equilibrium : Find the sub game perfect Nash equilibrium of this two-stage game - discuss how the Trump tariff affects (i) the prices of smartphones, (ii) the market share

Write a program that will prompt the user for temperature : Add this static method to your program. Use the output of the cToF conversion method as the input for the fToC conversion method.

Write a string expression whose value is the string : Write a string expression whose value is the string equivalent of each these variables joined by a single period .

Calculate the cost of that order and add : A good friend of yours is managing a fund raiser for a football team. He needs a program to calculate the total amount of candy sold at a football game.

Write a function named init that takes one argument : Write a function named init that takes one argument, a tuple of the proper length, and returns an tuple initialized as described above.

User Account

All Pages