Assume two firms, A and B, serve a market with demand D(p) = 100 minus (p). Also assume that (i) firms compete for market share (quantity competition) and (ii) firm A has cost function cA(Q) = 2Q and firm B has cost function cB(Q) = Q. Describe this environment as a game. (i.e. Specify the players, the strategies available to players, and the payoffs they receive as a function of their strategies)
Does either firm have a dominant strategy?
Compute the Nash equilibrium.
Now assume that firm A moves first, after which firm B makes its supply choice. Solve for the unique equilibrium outcome.