GATE 2026 Question 45: Monopolistic competition and oligopoly
Two companies, Company 1 and Company 2, are playing a simultaneous-move game. They are selling competing devices, whose quantity demanded are given by x1 and x2, and their prices are p1 and p2, respectively. The demand equation for the device of Company 1 is x1=300(90−0.5p1+0.25p2), and that of Company 2 is x2=300(90−0.5p2+0.25p1). The cost of production of both devices is zero. Each company is interested in maximizing its own profit.
Which one of the following price combinations constitutes the Nash equilibrium of the game?
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Two companies, Company 1 and Company 2, are playing a simultaneous-move game. They are selling competing devices, whose quantity demanded are given by x₁ and x₂, and their prices are p₁ and p₂, respectively. The demand equation for the device of Company 1 is x₁=300(90-0.5p₁+0.25p₂), and that of Company 2 is x₂=300(90-0.5p₂+0.25p₁). The cost of production of both devices is zero. Each company is interested in maximizing its own profit. Which one of the following price combinations constitutes the Nash equilibrium of the game? (A) p₁=90, p₂=90 (B) p₁=120, p₂=120 (C) p₁=45, p₂=45 (D) p₁=105, p₂=75
Also written as: Two companies, Company 1 and Company 2, are playing a simultaneous-move game. They are selling competing devices, whose quantity demanded are given by x_1 and x_2, and their prices are p_1 and p_2, respectively. The demand equation for the device of Company 1 is x_1=300(90-0.5p_1+0.25p_2), and that of Company 2 is x_2=300(90-0.5p_2+0.25p_1). The cost of production of both devices is zero. Each company is interested in maximizing its own profit. Which one of the following price combinations constitutes the Nash equilibrium of the game?
Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.
What this question tests
This question is on Bertrand competition, part of Monopolistic competition and oligopoly in Microeconomics.
Firms competing on price, and why identical firms price at marginal cost.
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