EconS491_Recitation5_Spring2011

Bothequilibriaresultinthesameoutcomepath 1 1 b derive

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Unformatted text preview: e game itself. If IBM chooses to develop OS/2, then, as previously derived, company 1 develops an application and this induces both companies 2 and 3 to do so as well. Hence, IBM’s payoff is 5. It is then optimal for IBM to develop OS/2. There are then two subgame perfect Nash equilibria (where a strategy for company 2, as well as for company 3, is an action in response to company 1 choosing develop and an action in response to company 1 choosing do not develop): (develop OS/2, develop, develop/develop, develop/develop), (develop OS/2, develop, develop/do not develop, develop/do not develop). Both equilibria result in the same outcome path. 1 1 b. Derive a Nash equilibrium that is not a subgame perfect Nash equilibrium, and explain why it is not a subgame perfect Nash equilibrium. Consider any strategy profile in which IBM chooses do not develop OS/2and the other three companies’ strategies are such that at most one of them develops an a...
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