Suppose Two Colas Compete in a Bertrand Market Structure with Differentiated

question 156

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 = q_2, 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:

Legitimate Power

Power that is recognized as rightful or lawful, often derived from a position of authority or social structure.

Expert Power

The influence and authority a person has as a result of their expertise, skills, or knowledge.

Referent Power

A form of power that stems from being admired or respected, often due to charismatic qualities or identification with the person who has the power.

Legitimate Power

The authority an individual has because of their position in an organization's hierarchy, contributing to their ability to influence others.