In a three stage alternating offers bargaining game, player 1 demands a fraction x of $100. If this is accepted by player 2, the $100 is split between the players with outcome ($100x,$100(1 - x)). Otherwise, at stage 2, player 2 makes a demand for a fraction y. If this is accepted by player 1, the $100 is divided accordingly but otherwise player 1 can make another offer and demand a fraction z. If that offer is rejected by player 2, the outcome is (0,0). Both players have a discount factor of 1/2. (a) Find a perfect equilibrium for this game. (b) Is there a first-mover advantage?

In a three stage alternating offers bargaining game, player 1 demands a fraction x of $100. If this is accepted by player 2, the $100 is split between the players with outcome ($100x,$100(1 - x)). Otherwise, at stage 2, player 2 makes a demand for a fraction y. If this is accepted by player 1, the $100 is divided accordingly but otherwise player 1 can make another offer and demand a fraction z. If that offer is rejected by player 2, the outcome is (0,0). Both players have a discount factor of 1/2. (a) Find a perfect equilibrium for this game. (b) Is there a first-mover advantage?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.7P

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