February 2016
Beginner to intermediate
500 pages
33h 40m
English
1.1 (a) In the simultaneous move game there are two Nash equilibria (in pure strategies). One Nash equilibrium is for Firm 1 to sell 10 and Firm 2 to sell 20. The other is for Firm 1 to sell 20 while Firm 2 sells 10. (b) After drawing the game tree, you can use backward induction to see that if Firm 1 sells 10, then Firm 2 will choose 20, while if Firm 1 sells 20, then Firm 1 will sell 10. The first of these possibilities is better for Firm 1. Since Firm 1, the leader, can choose first, it therefore sells 10. Thus, the subgame-perfect Nash equilibrium is for Firm 1 to sell 10 and Firm 2 to sell 20. (c) If Firm 2 is the leader, the subgame-perfect Nash equilibrium is that Firm 2 sells 10 and Firm 1 sells 20.
1.2 In a game that is ...