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1.Draw the extensive form representation of this game. 2. Find a subgame perfect equilibrium (SPE) of this game.  focus on pure-strategies only.

1.Draw the extensive form representation of this game. 2. Find a subgame perfect equilibrium (SPE) of this game.  focus on pure-strategies only.

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter15: Strategic Games
Section: Chapter Questions
Problem 3MC
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1.Draw the extensive form representation of this game.

2. Find a subgame perfect equilibrium (SPE) of this game.  focus on pure-strategies only.

Stage 1.– Firms 1 and 2 simultaneously choose how much to spend on advertising. Let a, and az denote the advertising levels of firms 1 and 2, respectively. Suppose that advertising costs are 2. q? for firm 1, and 2. g? for firm 2. Stage 2.– Having observed a, and a2, both firms play a simultaneous Cournot- quantity competition game. The market price is given by the equation p = 20 + dj + az – q1 – 92. Assume that production costs are c(gi) = 5 · gi for i = 1, 2.
Transcribed Image Text:Stage 1.– Firms 1 and 2 simultaneously choose how much to spend on advertising. Let a, and az denote the advertising levels of firms 1 and 2, respectively. Suppose that advertising costs are 2. q? for firm 1, and 2. g? for firm 2. Stage 2.– Having observed a, and a2, both firms play a simultaneous Cournot- quantity competition game. The market price is given by the equation p = 20 + dj + az – q1 – 92. Assume that production costs are c(gi) = 5 · gi for i = 1, 2.
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