Unformatted text preview: 1 ; h 2 ) , the value of the subsidy that gets approved is 10 ± ( h 1 + h 2 ) + & ± h 1 ± h 2 , where & ² is a constant. Then, the subsidy well be splitted evenly between the two ±rms. Suppose each ±rm tries to maximize its pro±t, i.e., the subsidy he gets minus the cost of its e/ort. (a) Suppose & = 2 , what are the rationalizable strategies for each ±rm? (b) suppose & = 2 , what are the purestrategy Nash Equilibria? 3. Suppose we make one modi±cation on Q.1: ±rm 1 moves ±rst, i.e., it chooses h 1 . After observing h 1 , ±rm 2 chooses h 2 . (a) what are the strategies for both ±rms? (b) what are the subgames? (c) suppose & = 2 , what are the Subgame Perfect Nash Equilibria? 1...
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 Spring '11
 Siyang
 Economics, Game Theory, Nash equilibria, Perfect Nash Equilibria, fair coin toss, allpay sealedbid auction

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