firm''s home market, Management Theories

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Suppose that two national champions are active in the similar industry but in two neighbouring countries. Initially, neither firm is active in the other country. They every face the following inverse demand curve: P=100-q. Their marginal costs are equal and constant at 10. They both consider entering the market in the other country. If they do so, every of them will face an inverse demand function P=20-0.2q in the foreign country. Though, if there is entry into a firm's home market by a foreign firm, the home inverse demand will no longer be P=100-q, but it will then change to become P=75-0.75q.


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