The Hull Petroleum Company and Inverted V are retail gasoline franchises that co

Question

The Hull Petroleum Company and Inverted V are retail gasoline franchises that compete in a local market to sell gasoline to consumers. Hull and Inverted V are located across the street from one another and can observe the prices posted on each other's marquees. Demand for gasoline in this market is Q = 50 - 10P, and both franchises obtain gasoline from their supplier at $1.25 per gallon. On the day that both franchises opened for business, each owner was observed changing the price of gasoline advertised on its marquee more than 10 times; the owner of Hull lowered its price to slightly undercut Inverted V's price, and the owner of Inverted V lowered its advertised price to beat Hull's price. Since then, prices appear to have stabilized. Under current conditions, how many gallons of gasoline are sold in the market, and at what price? Would your answer differ if Hull had service attendants available to fill consumers

Explanation / Answer

This is a Bertrand oligopoly due to the similarity of the product and the price cutting to get customers. The equilibrium price is $1.25, so Q=50-10(1.25) Q = 37.5 gallons If one was a full service station, then that one would be able to charge a higher price because the product along with the service would be differentiated and profits would still be made.

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