2350pqset04an - YORK UNIVERSITY - AS/ECON2350 V.BARDIS...

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YORK UNIVERSITY - AS/ECON2350 – V.BARDIS PRACTICE SET 4 1. Player 2 S D Player 1 S (1,1) (10,0) D (0,10) (0,0) The game has a dominant strategy equilibrium which is also the N.E. of the game. Each player chooses S regardless of what the other does since 1>0 and 10>0. In equilibrium, they get a combined profit of 1+1=2. They could do better if the could coordinate their e-mailing so the outcome is either (S,D) or (D,S). Then they could potentially share a total profit of 10 which is greater than 2. (Of course they would have to reach an agreement to that effect which may not be easy to do.) Thus the equilibrium is inefficient from the firms’ point of view. Although we have no payoffs for the consumers specified here we expect that they also could become better off if they received less spam, so the outcome is inefficient from the point of view of ‘society at large’. 2. Game 1: Player 1’s dominant strategy is U since 2>1 and 0>-1. Similarly, the dominant strategy of player 2 is R
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