8.6 Investment in the Future: Consider two firms that play a Cournot competition game with demand...

8.6

Investment in the Future: Consider two firms that play a Cournot competition game with

demand p = 100 − q and costs for each firm given by c_i(q_i) = 10q_i . Imagine that before the two firms play the Cournot game firm1 can invest in cost reduction. If it invests the costs of firm 1 will drop to

c₁(q₁) = 5q₁. The cost of investment is F >0. Firm 2 does not have this investment opportunity.

a. (i) Find the value F* for which the unique sub game-perfect equilibrium involves firm 1 investing.

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orchestra answered 1 year ago

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