View the step-by-step solution to:


Game Theory: A firm and its supplier are going to negotiate a deal. Since the supplier's cost is

$10 million per quarter and the value to the firm is $13 million per quarter, there is $3 million per quarter to split between the two. However, they can each hire a negotiation consultant for $500,000 per negotiation. If neither hires the consultant, each expects to get half of the $3 million pot. If only one hires the consultant, it expects to get three-fourths of the pot minus the consultant costs, leaving the other firm to gain 0 (and incur in 0 cost as well). If they both hire consultants, their consultants suggest additional expenditures that erases the potential gain of $3, leaving the firm and the supplier with the cost of hiring the consultants.

What is the equilibrium of this simultaneous move game (Hint: set up the 2x2 table and fill in the pay-off values in the cells, then determine the Dominant Strategies and Nash Equilibrium)? Explain your reasoning. 

Top Answer

There are two Nash equilibrium,... View the full answer

New Doc 2019-12-11 11.18.19_1.jpg

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question