Suppose Two Colas Compete in a Bertrand Market Structure with Differentiated

question 53

Essay

Suppose two colas compete in a Bertrand market structure with differentiated products. Demand for the first cola is given by where p₁ is price for cola 1 and p₂ is the price for cola 2. Demand for the second cola is The costs of providing the colas are C₁ = q₁ and C₂ = q₂ respectively.
a. Identify firm 1's profit function.
b. Identify firm 2's profit function.
c. Identify firm 1's reaction function.
d. Identify firm 2's reaction function.
e. Identify the equilibrium price charged for each cola.

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Definitions:

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