Why is pepsi''s reaction function so flat

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Reference no: EM131250962

Consider the Coke and Pepsi example discussed in the chapter.

a) Explain why each firm's reaction function slopes upward. That is, why does Coke's profit-maximizing price go up the higher is Pepsi's price? Why does Pepsi's profit-maximizing price go up the higher Coke's price is?

b) Explain why Pepsi's profit-maximizing price seems to be relatively insensitive to Coke's price. That is, why is Pepsi's reaction function so flat?

Reference no: EM131250962

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