3. Suppose there are two movie rental stores in town: Captain Video and Movie Mania. These movie rental firms face a choice between two advertising strategies: television (T) and radio (R). Captain Video will be the first firm to make a decision, and their decision will be based on the anticipated action of Movie Mania. A game tree is provided below: Captain Video T R Movie Mania Movie Mania RT T R $800, $600 $600, $750 $400, $400 $250, $450 Find the Nash equilibrium using the backward induction method. Please explain the decision making process of each firm. (3 pts)
3. Suppose there are two movie rental stores in town: Captain Video and Movie Mania. These movie rental firms face a choice between two advertising strategies: television (T) and radio (R). Captain Video will be the first firm to make a decision, and their decision will be based on the anticipated action of Movie Mania. A game tree is provided below: Captain Video T R Movie Mania Movie Mania RT T R $800, $600 $600, $750 $400, $400 $250, $450 Find the Nash equilibrium using the backward induction method. Please explain the decision making process of each firm. (3 pts)
Chapter8: Game Theory
Section: Chapter Questions
Problem 8.9P
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