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8 views2 pages

AdvMicro PS10

Uploaded by

fangcao1998fc
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Advanced Microeconomic Theory I University of Konstanz

Chair of Microeconomic Theory

Problem set 10: Extensive-form games

1. Consider an extensive form game with two rms A and B. Firm A has developed
a computer game that will be popular. Firm B can copy the game; the best way
of copying entails hiring some of rm A's engineers. Firm A can pre-empt this by
signing work contracts that deny the engineers to get employment in a competing
rm. This is costly, since engineers have to be compensated for taking away an
outside option. If rm B copies rm A's product, rm A can choose to ght by
advertising, or not ght and share the market with rm B. Fighting is, of course,
costly. Firm A rst chooses either PRE-EMPT or DO NOTHING. Then rm
B chooses either ENTER or STAY OUT. Then rm A chooses either FIGHT or
SHARE. All actions are publicly observed. The payos associated with each end
node are

(PRE-EMPT,ENTER,FIGHT): (170,-50)
(PRE-EMPT,ENTER,SHARE): (150,50)
(PRE-EMPT,STAY OUT): (400,0)
(DO NOTHING,STAY OUT): (500,0)
(DO NOTHING,ENTER,SHARE): (250,150)
(DO NOTHING,ENTER,FIGHT): (230,90)

(a) Draw the game tree for this game.


(b) How many strategies does each player have?
(c) Present the game as a normal form game.
(d) Find the pure-strategy Nash equilibria.
(e) Which of them are subgame perfect?

2. Consider a bargaining game where two players try to agree on a division of a


cake. In the rst period, player 1 makes a proposal. If it is accepted the division
is implemented. If it is rejected by player 2, then the game moves to a second

1
period where it is player 2's turn to make a proposal. If it is accepted then the di-
vision is implemented. If player 1 rejects the proposal the game ends and neither
player gets anything. Payos are discounted by factor δ ∈ (0, 1) between periods.
Moreover, if a player is indierent between accepting and rejecting an oer, he
would accept. Find the unique subgame-perfect Nash equilibrium of the game.

3. Consider the entry game covered in the lecture notes (chapter 6), with slightly
modied payos as listed below.

(Stay out) = (2, 2)


(enter prep., accommodate) = (4, 1)
(enter prep., f ight) = (0, 0)
(enter unprep., accommodate) = (3, 0)
(enter unprep., f ight) = (0, 1)

First, derive the normal-form version of the game. Then, nd all the pure-strategy
Nash, subgame-perfect, and weak sequential equilibria of the original game.

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