Problem Set 7
Economics 416, Game Theory
Ying Chen, Spring 2010
Three questions due Thursday April 1, at the beginning of class
1. Entry and Competition Revisited.
In the entry and competition game
(Dutta, page 194) we discussed in class, we found two pure strategy subgame
perfect equilibrium (SPE) : (OT,T), (EA,A). Find another SPE in which the
players play mixed strategies in the postentry subgame.
2
.
Arnold and Boris have each deposited the same amount, $
, into the
Smalltown Saving and Loan (S&L). Since Arnold and Boris are the only two
investors, the initial total in the S&L is $
2
. Money in the S&L grows over time:
perhaps, the nice manager of the S&L invests it in local people’s businesses and
housing. By period
1
, the total money in the S&L will increase to
2
. If the S&L
survives to period 2, the money will increase to
2
. Assume
.
In period
1
, each depositor can either withdraw or notwithdraw his money.
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 Spring '10
 Y.Chen
 Game Theory, Period, SPE, pure strategy, S&L

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