Ms 452 strat and org c 2008 scott schaefer 12 11 13

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Unformatted text preview: 0,20) (0,0) (5,5) (20,10) • Note this game has a clear first mover advantage. M €€ W    M €€ €€ € W    Scott rr r rr r Museum rr • Work backwards to solve. M&S 452 — Strat and Org c 2008 Scott Schaefer ¨¨ ¨¨ ¨ ¨ ¨¨ Wrigley ¨ ¨ ¨  • Outcomes can be quite different if the players move sequentially. M&S 452 — Strat and Org c 2008 Scott Schaefer 12 11 13 (100 − Q1 − Q2)Q1 − 10Q1 14 which is equal to 1 (55 − Q1)Q1 − 10Q1. 2 1 (100 − Q1 − (45 − Q1))Q1 − 10Q1 2 – Firm 1 chooses Q1 to maximize: – Firm 2 will choose its quantity to maximize its profit after seeing what firm 1 has done: 1 Q2 = 45 − Q1 2 • As we did with the sequential Battle of the Sexes, work backward to solve: M&S 452 — Strat and Org c 2008 Scott Schaefer subject to the constraint that after Q1 is chosen, firm 2 will choose Q2 to maximize (100 − Q1 − Q2)Q2 − 10Q2 – Choose Q1 to maximize • Example • Suppose one firm in a Cournot oligopoly can credibly pre-announce a quantity....
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