Unformatted text preview: Consider the following sequential game. Coke is trying to decide whether to develop a new product. The payoff situation (in profit) is the following: If Coke does develop the product, Coke will get $600 million if Pepsi develops a new product too and $800 million if Pepsi chooses not to develop a new product. If Coke doesn’t develop a new product, Coke will get $200 million if Pepsi does develop a new product and $400 million if Pepsi doesn’t develop a new product. If Coke does develop a new product, then Pepsi will get $600 million if it develops one too and only $200 million if it doesn’t develop one. If Coke does not develop a new product, then Pepsi will get $800 million if it develops a new product and only $400 million if it doesn’t develop a new product. Create an extensive form of this game that represents this situation and use backward induction to find the outcome of the game....
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This note was uploaded on 09/18/2010 for the course ECON 360 taught by Professor Andreaspape during the Fall '08 term at Binghamton.
- Fall '08