Question

The Grand River Brick Corporation uses Business-to-Business internet technology to set output before Bernard's Bricks. The market demand for bricks is: . Q = 1000-100P

The long-run average cost is constant at $2.00 for both firms. Calculate the optimal output and price levels for each firm. Do both firms get the same market share? Why or why not?

Answer 1

No. Both firms don't get equal market share.

We have seen that Grand River brick corporation produces 40 whereas Bernard Brick produces only 20.

Because in this market, Grand River brick corporation moves first. It anticipates the way in which Bernard Brick would reply to its output. So, it produces output that maximizes its profits anticipating how Bernard Brick would react.

Once, the output of Grand River brick corporation is set, Bernard has no choice but to maximize its profit given the output of Grand River brick corporation.

Grand River Brick corporation gets a higher market share than Bernard Brick. This happens because there is a first mover advantage in this market. Grand River Brick corporation moves first and gets higher market share.