ps11ans

# ps11ans - UNIVERSITY OF WISCONSIN Economics 101 Fall 2005...

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Wei Zhang Problem Set 11 – ANSWER KEY Game Theory : A Simple Logic Game 1. This is a location game - use logic and common sense to look for a solution. Start with a simple diagram: The line denotes the length of the beach, and the two suns represent the vendors. To get started, let’s begin with the vendors spaced evenly across the beach, and ask if this can be a Nash equilibrium. That is, we’ll ask if there is any way that a vendor could move (deviate) to gain more customers. If there is, then this cannot be a NE, since at least one player has an incentive to deviate. Is this Nash equilibrium? The No. This cannot be an equilibrium, because each vendor has an incentive to deviate - moving closer to the other vendor. For example, Vendor A could move right, all the way to vendor B’s stand, and thus increase her market share, as shown below. Is this a Nash equilibrium? No again. B could improve his business by jumping just the left of vendor A.

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## ps11ans - UNIVERSITY OF WISCONSIN Economics 101 Fall 2005...

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