2. Consider a monopolist upstream supplier U1 selling to two down stream producers D1 and D2 engaged in Cournot competit

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2 Consider A Monopolist Upstream Supplier U1 Selling To Two Down Stream Producers D1 And D2 Engaged In Cournot Competit 1 (146.1 KiB) Viewed 23 times

2. Consider a monopolist upstream supplier U1 selling to two down stream producers D1 and D2 engaged in Cournot competition. Downstream demand is described by P=100-Q. The marginal cost is zero at both the upstream and the downstream level. a. What price will U1 set? What will the downstream price be? Calculate the profits of U1, D1, and D2. (hint : Suppose the price set by U1 is r. What will be the outcome in the downstream market?) b. Imagine a contract by which U1 sells 25 units as a package to each of D1 and D2 at a price of 1250. Each firm can either accept the package or reject it. Show that if decisions are made simultaneously, and each firm has full information about the other's actions, a Nash Equilibrium is for each to accept this offer.