midterm2 2008 solutions

# Note that she cannot work for both yahoo and google 4

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

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