PS18 dyn games

PS18 dyn games - Intermediate Microeconomics, Winter 2008...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Intermediate Microeconomics, Winter 2008 Problem Set No 18 due: Monday, March 31; Tuesday, April 1 Reading: Chaper 14, 513 -514 (Repeated Games) Solve the following problems from the book, Chapter 13: 30W, 38 Q1 (Chainstore Paradox). A monopolist (Player A) has branches in 20 towns. He faces 20 potential competitors in each town, who will be able to choose IN or OUT. They do so in sequential order and one at a time. If a potential competitor chooses to stay OUT, he receives a payo/ of 1, while A receives a payo/ of 5. If he chooses to go IN, he will receive a payo/ of either 2 or 0, depending on the response of Player A to his action. Player A, in response to a choice of IN, must choose one of two pricing strategies, COOPERATIVE or AGGRESSIVE. If he chooses COOPERATIVE, both player A and the com- petitor receive a payo/ of 2, and if A chooses Aggressive, each player receives a payo/ of 0. Find the solution of this game using backward induction. What do you think about the result? (Hint: If you are not sure how to approach the question, work on the case for 2 towns by drawing the tree of the game to get an idea.) Q2. Reconsider Question 2 from Problem Set 17: American and United
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

PS18 dyn games - Intermediate Microeconomics, Winter 2008...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online