midterm2 2008 solutions

Suppose that w wa if google deviates and accepts then

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Unformatted text preview: continuing, she will offer wA at the next day, which will be accepted. The present value of this is δ wA = π δ (1 − δ ) + δ 2 r < r ≤ w , i.e. this deviation yields even a lower payoff. — Suppose that w < wG ≡ r. Alice is supposed to reject it and take Yahoo’s offer with payoff r. If she deviates accepting w , she will get the lower payoff of w < r. If she deviates by rejecting and continuing, she will get wA next day, with a lower present value of δ wA = π δ (1 − δ ) + δ 2 r < r. • Consider a case Google offers w. If w...
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This document was uploaded on 03/21/2014 for the course ECON 14.12 at MIT.

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