Consider a pricing problem with two sellers, A and B, and 12 buyers, who each have...

Consider a pricing problem with two sellers, A and B, and 12 buyers, who each have a unit demand for a good provided the price is no more than 4. Each seller can produce a good on order at price 1.
Sellers announce prices simultaneously, pA and pB respectively. Buyers 1-6 see Player A's price but not Player B's. Likewise buyers 7-12 see Player B's price but not Player A's.Each buyer can choose to buy from the seller whose price he sees or to walk over to the other seller (at a cost of $0.10), when he can buy from that seller or walk back to the seller whose price he saw originally (for another 10c) and buy from her.

The payoffs are the standard ones in pricing problems. In addition, buyers have to subtract the cost of travel, if any.

What are the equilibrium prices announced by the sellers? Each can choose a price in[1,4].

Solutions

Expert Solution

The seller A and seller B have equal buyers

Seller A have 1-6 buyers

Seller B have 7- 12 buyers

The production charges for seller A and B are the same which is 1 dollar

Here the price range should be 1- 4 not more than 4 so in the case of having equal buyers the sellers could charge less than 3 dollars because some of the buyers have travel expenses as mentioned 0.10 dollars so, both the sellers will come to an equilibrium point of prices

So the seller A and B will give the product at 2dollars which is acceptable by the buyers

Rahul Sunny answered 2 years ago

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