Extending the previous problem, suppose China decides to enter the VLCC construction market. The…

Extending the previous problem, suppose China decides to
enter the VLCC construction market. The duopoly now becomes a triopoly, so that
although price is still P = 180 – Q, quantity is now given by

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Q = qKorea + qJapan + qChina.
Assume that all three countries have a per-ship cost of $30 million:

cKorea = cJapan = cChina
= 30.

(a) Write the profit functions for each of the three
countries in terms of

qKorea, qJapan, and qChina,
and cKorea, cJapan, or cChina. Find each
country’s best-response rule.

(b) Using your answer to part (a), find the quantity
produced, the market share captured [see Exercise S8, part (c)], and the
profits earned by each country. This will require the solution of three
equations in three unknowns.

(c) What happens to the price of a VLCC in the new
triopoly relative to the duopoly situation in Exercise S8, part (b)? Why?

 

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