Followup questions to previous assignment where cable market is described as q(p) = 180 - 2p
Assume now that two exactly similar cable operators compete. They both start by deploying network everywhere, so they both incur the same large fixed cost and their networks are ready at the same time. The service they provide is cable and they do so with the same quality and thus assume that consumers don't really care which operator provides them service as long as the have service once they want to buy.
1) What equilibrium prices will we see in the market when both operators compete on prices? Why?
2) Now let's assume that these network operators engage in a Cournot competition where they compete on quantity. When they compete in quantity, they charge the same price but choose the number of households for which they activate service. What are the profits of the two operators in terms of the quantities (q1 and q2) provided by the two operators?
(Hint: think about what price would lead to an overall demand of q1 + q2.)
3) Compute the monthly price at which cable will be provided when the firms engage in Cournot competition
( both companies try to choose the optimal output to maximize their profit)
Required minimum-1 page