Suppose that Huawei and Samsung are the two primary competitors in the market for 4G handsets....

Suppose that Huawei and Samsung are the two primary competitors in the market for 4G handsets. Each firm must decide between two possible price levels: $1000 and $900. The production cost is $400 per handset. Firm demand is as follows: if both firms price at 1000, then Huawei sells 500 and Samsung 800; if both firms price at 900, then sales are 800 and 4 900, respectively; if Huawei prices at 1000 and Samsung at 900, then Huawei's sales drop to 400, whereas Samsung's increase to 1100; finally, if Huawei prices at 900 and Samsung at 1000 then Huawei sells 900 and Samsung 700. Suppose firms choose prices simultaneously. Describe the game and solve it. Now, suppose that Samsung has a limited capacity of 800 units per quarter. Moreover, all of the demand unfulfilled by Samsung is transferred to Huawei. How would the analysis change?

Expert Solution

Rahul Sunny answered 2 years ago

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