Chrome File Edit View story Bookmarks Profiles Tab Window # O Q 8 Tue Mar 1 10:14 AM … Houston, TX We X Bb Slides – 2022SF X Bb Slides

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b) Assume that 61 = 2, 62 = 3 and 63 = 4. Don’t forget that the consumer can choose not to buy
anything. Solve for the market share of Apple ($2). (5 points)
c) Continue to assume that 61 = 2, 62 = 3 and 63 = 4 and assume also that because of limited
information the consumer knows about Apple computers with probability 0.6, about Dell
computers with probability 0.8, and about IBM computers with probability zero. Solve for the
market share of Apple ($2). (8 points)
176
MAR
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Question 2: Differentiated product market: Logit model (17 points)
Consider the market for personal computers. Suppose that there are three differentiated products
(j = 1,2,3), where product 1 is IBM, product 2 is Apple and product 3 is Dell. Each household i
chooses the product j which yields the highest utility or decides not to buy a computer (denoted
product j = 0). The utility is given by:
Uij = Bxj – apj + 5;+ Eij
where x; measures the CPU speed of product j, B shows the marginal utility of CPU speed for the
consumers, p; is the price of product j, a is the marginal disutility from paying the price and $ j,
Eij are unobserved terms as discussed in class. We have data for CPU speed and price. Eij follows
an extreme value distribution (same as we discussed during class). Then market shares of product
j > 0, under FULL information will have the familiar form,
exp (S;)
$j – 1 + exp(81) + exp(62) + exp(63)
176
MAR
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