Answers Lecture Notes 7 (1)

Answers Lecture Notes 7 (1) - Correction of Lecture Notes 7...

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Correction of Lecture Notes 7 Some examples of Extensive Form Games and SPNE Correction of Example 2: Firm-union bargaining (Osborne) 2a) The following extensive game models the situation. Players: The …rm and the union Terminal histories: All sequences of the form ( w;Y;L ) and ( w;N ) for nonnegative numbers w and L ,wh e r e w is the wage, Y means accept, N means reject, and L is the number of workers hired. Player function: P ( ; ) is the union, and for any nonnegative number w , P ( w ) and P ( w;Y ) are the …rm. Preferences: Pro…t ¦ for the …rm and U for the union. 2b) To …nd the subgame perfect equilibrium of this game (Nash equilib- rium in each subgame), we have to use a backward induction to solve this problem. Let us thus …rst consider the subgame following a history ( w;Y ) , i.e. the union demands w and the …rm has accepted the demand. In a subgame perfect equilibrium, the …rm chooses L to maximize its pro…t, given
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Answers Lecture Notes 7 (1) - Correction of Lecture Notes 7...

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