Reaction Function question.

Discussion in 'Economics' started by richard255, Dec 20, 2008.

  1. Hi. My name is richard and I have a question about reaction functions:

    The reaction function specifies where a profit-maximizing firm wants to position itself in response to a move by its competitor(s) if it is only responding to its competitor's specific move without considering the chain reaction that may follow. It is common to represent a duopoly's respective reaction functions on a single diagram and to focus on whether those have positive or negative slopes.

    1: Please explain the significance of the slope in terms of strategy.

    2: Please explain the impact of product differentiation on the slopes of the reaction functions both where the reaction is complementary (Bertrand-like) and where it is based on substitution (Cournot-like)

    3: Apply that model to provide a possible explanation of why local telephone companies were able to capture very quickly a disproportionate share of the long distance market. Note that this change in regulation made them dominant in that sector (prior to it, they were restricted to offering local service, distinct providers offering long distant service).
  2. You really meant to post that at, didn't you? :cool:
  3. Smells a lot like homework.