Dynamic Games 3. Two firms are engaging in a simultaneous-move game with three options (A, B, and C). Below is a payoff matrix with all possible outcomes. Firm 1 A B C A 5,5 0,0 6,0 Firm 2 B 0,0 4,4 1,0 . C 0,6 0,1 1,1

Dynamic Games 3. Two firms are engaging in a simultaneous-move game with three options (A, B, and C). Below is a payoff matrix with all possible outcomes. Firm 1 A B C A 5,5 0,0 6,0 Firm 2 B 0,0 4,4 1,0 . C 0,6 0,1 1,1

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 3MC

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Question

a. Assume the game is played in one period. Using best responses, find all Nash equilibria.

b. Now assume the game is played twice. For what discount values will both firms be willing to cooperate and play (A, A) in this first period and the higher value Nash equilibrium in the second period if one firm punishes any deviation by the other firm in the first period by playing the lower value Nash equilibrium in the second period?

Dynamic Games
3. Two firms are engaging in a simultaneous-move game with three options (A, B, and C).
Below is a payoff matrix with all possible outcomes.
Firm 1
A
B
C
A
5,5
0,0
6,0
Firm 2
B
0,0
4,4
1,0
C
0,6
0,1
1,1

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