dynamicStackelberg - its quantity, but &rm 1 cannot....

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A Dynamic Oligopoly Game nature. In the high state, the inverse demand function is given by p H = 120 q 1 q 2 where p H is the price and q i i ( i = 1 ; 2 ). In the low state, the inverse demand function is given by p L = 80 q 1 q 2 The probability of each state is 1 2 . Assume that production costs are zero. That is, q 2 can be a function of q 1 . (a)
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Unformatted text preview: its quantity, but &rm 1 cannot. Calculate the unique subgame perfect Bayesian Nash equilibrium. Be careful to fully specify &rm 2s strategy. (b) Suppose &rm 1 can observe the true state of nature before choosing its quantity, but &rm 2 cannot. Calculate one weak perfect Bayesian equilibrium (WPBE) of this game. Remember to specify beliefs as well as strategies. (c) Without doing any calculations, carefully explain the intuition for why there are many WPBE of the game in part (b). 1...
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This note was uploaded on 07/17/2008 for the course ECON 805 taught by Professor Peck during the Spring '08 term at Ohio State.

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