midterm2 2008 solutions

Note that she cannot work for both yahoo and google 4

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: w and starts working for Google for wage w, ending the game, • or rejects the offer w and takes Yahoo’s offer r, working for Yahoo for wage r and ending the game, • or rejects the offer w and then the negotiation continues. ¯ If the game continues to date t ≤ ∞, then the game ends with zero payoffs for both players. ¯ If Alice takes Yahoo’s offer at t < t, then the payoff of Alice is rδ t and the payoff of Google ¯ is 0, where δ ∈ (0, 1). If Alice starts working for Google at t < t for wage w , then Alice’s t t payoff is w δ and Google’s payoff is (π − w ) δ , where π /2 < r < π . (Note that she cannot work for both Yahoo and Google.) 4 ¯ (a) (10 points) Compute the subgame perfect equilibrium for t = 4. (There are four rounds of bargaining.) ANSWER: • (2.5pts) Consider t = 3. Alice will get w if she accepts Google, r if she accepts Yahoo, and 0 if she rejects and continues. Thus, she must choose Google if w ≥ r sA,3 = Y ahoo otherwi...
View Full Document

This document was uploaded on 03/21/2014 for the course ECON 14.12 at MIT.

Ask a homework question - tutors are online