firms with market power offer differentiated products in order to:

Expert Solution

Answer) Firms with market power have reached that position for some reason which could be early move,capital, investment at right time but it want to retain that market power and share and one of the ways to do it is by offering differentiated products, in other words an entry barrier is being created and at the same time customers are being offered differentiated products so their dependence on this organization increases, we can understand it better with an example, suppose a firm starts producing organic immunity booster juices, market is less penetrated and company is making decent profits and soon has market share and market power, now all of a sudden a powerful capital intensive group looks to enter this industry, with high capital they can offer similar product at lesser rates,so the current market leader has very limited options ,strongest of which is to keep offering newer and differentiated products which are difficult for capital intensive group to mimic in short period and current market leader can retain its share.

So to conclude in order to retain market power and market share as well as deter the entry of other players, company with current market power keep offering differentiated products.

Answer is complete. Thank you!

Rahul Sunny answered 2 years ago

In a market, there are two firms, firm A and firm B, producing differentiated products. Denoting...

In a market, there are two firms, firm A and firm B, producing differentiated products. Denoting the prices with pA and pB, firm A faces a demand given by qA(pA,pB) = 380−2pA +4 α pB, where 0 ≤ α < 1, and firm B faces a demand given by qB(pA,pB) = 180 − 2pB + pA. Each firm has a constant marginal cost, cA =cB =10and no fixed costs. (a) Suppose that the firms compete in prices simultaneously. Find the...

Two firms compete in a market by selling differentiated products. The demand equations are : q1...

Two firms compete in a market by selling differentiated products. The demand equations are : q1 = 75 – p1 +p2/2 q2 = 75 – p2 +p1/2 Assume that each firm has a marginal cost and average costs of 0 What market model do we use if each firm competes by simultaneously choosing price Are the two goods substitutes? . Solve for firm 1’s best response function. Solve for the equilibrium price and quantity. Would firm 1 still be able...

Horizontal Mergers. Consider a market that initially has two firms selling differentiated products and competing in...

Horizontal Mergers. Consider a market that initially has two firms selling differentiated products and competing in prices. The cost of production of each firm is C(q)=0. Demand for the two goods is given by the following system: q1=420-4p1+p2 q2=420-4p2+p1 The goal of this question is to find by how much the prices of the goods will increase if the firms horizontally merge. To do this, we first derive the equilibrium prices before the merger, and then compare with the optimal...

The major difference between monopolistic competition and perfect competition is that firms produce differentiated products in...

The major difference between monopolistic competition and perfect competition is that firms produce differentiated products in the former and homogeneous products in the latter. How does product differentiation generate the differences between the two models?

Consider two firms that sell differentiated products and compete by choosing prices. Their demand functions are...

Consider two firms that sell differentiated products and compete by choosing prices. Their demand functions are Q1 = 72 – 3P1 + 2P2 and Q2 = 72 – 3P2 + 2P1 where P1 and P2 are the prices charged by firm 1 and 2, respectively, and Q1 and Q2 are the corresponding demands. All production costs are assumed to be zero. (a) Suppose the two firms set their prices simultaneously and non-cooperatively. Find the resulting Bertrand-Nash equilibrium. What price does...

Describe how firms with market power decide how much to produce in order to maximise profit....

Describe how firms with market power decide how much to produce in order to maximise profit. Comment on the efficiency of this output.

Two firms produce differentiated products and set prices to maximize their individual profits. Demand functions for...

Two firms produce differentiated products and set prices to maximize their individual profits. Demand functions for the firms are given by Q1 =64–4P1 +2P2 Q2 =50–5P2 +P1 where P1, P2, Q1, Q2, refer to prices and outputs of firms 1 and 2 respectively. Firm 1’s marginal cost is $5 while firm 2’s marginal cost is $4. Each firm has a fixed cost of $50. Assuming that the two firms decide on prices independently and simultaneously, calculate the best response function...

How do firms gain market power?

Q2. Consider a Bertrand game with differentiated products in which two firms simul- taneously choose prices....

Q2. Consider a Bertrand game with differentiated products in which two firms simul- taneously choose prices. The marginal cost for each firm is zero and there are no fixed costs. The demand functions for each firm are: Q1 = 80 − 2P1 + 2P2, Q2 = 80 − 2P2 + 2P1. where P1 is the price set by firm 1, P2 is the price set by firm 2, Q1 is the quantity demanded of firm 1’s product and Q2 is...

Suppose there are two firms operating in a market. The firms produce identical products, and the...

Suppose there are two firms operating in a market. The firms produce identical products, and the total cost for each firm is given by C = 10qi, i = 1,2, where qi is the quantity of output produced by firm i. Therefore the marginal cost for each firm is constant at MC = 10. Also, the market demand is given by P = 106 –2Q, where Q= q1 + q2 is the total industry output. The following formulas will be...

Question