There are two players, a seller and a buyer, and two dates.
Question Get Answer

Hi, I would like to have some guidance in this exercise related to game theory (dynamic game):

There are two players, a seller and a buyer, and two dates. At date 1, the seller chooses his investment level I ∈ {0, i_l, i_h} at cost I, where ih > i_l > 0. At date 2, the seller may sell one unit of a good and the seller has cost c(I) of supplying it, where c'(0) = −∞, c' < 0, c'' > 0, and c(0) is less than the buyer's valuation. There is no discounting, and the socially optimal level of investment, I* is i_h, this is 1 + c'(i_h) = 0. 

Suppose that at date 2 the buyer observes the investment I and makes a take-it-or-leave-it offer to the seller. What is this offer? what is the subgame perfect equilibrium of the game?



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
Let our 24/7 Microeconomics tutors help you get unstuck! Ask your first question.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes