A student asked the following question concerning how to interpret Chapter 10, Question #12 in the problem set due on November 5: What is Atlantic City’s objective; in other words, what do we need to calculate in order to answer the question, “Would Atlantic City have done better to sell the land as two separate parcels rather than as a single parcel to Win (given that Win was going to subdivide, Win and his rival could not collude, and Win did not have the ability to produce as a monopolist)?”

My recommendation is that you assume that Atlantic City’s objective is to maximize the total gambling quantity (after all, this would produce the most tax revenue for the city!). Therefore, in order to answer this question, you need to compare the market outcomes which occur under the Cournot equilibrium compared with the Stackelberg equilibrium (where Win is the leader and the rival is the follower). The two parcel setup is suggested in this problem as a way to motivate a Cournot solution (where Win and Win’s rival make simultaneous decisions), whereas the constrained one parcel setup is presented in order to motivate a Stackelberg solution.

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