Keep Prices (8.2) Advertise Lower Prices (4.6) Firm 1 Firm 2 Not Advertise O Not Advertise: Keep Prices O Advertise: Lower Prices O Not Advertise; Lower Prices Advertise: Keep Prices Keep Prices (6,10) The subgame perfect Nash-equilibrium is Lower Prices (3,7)

Keep Prices (8.2) Advertise Lower Prices (4.6) Firm 1 Firm 2 Not Advertise O Not Advertise: Keep Prices O Advertise: Lower Prices O Not Advertise; Lower Prices Advertise: Keep Prices Keep Prices (6,10) The subgame perfect Nash-equilibrium is Lower Prices (3,7)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Consider following extensive form game
Keep Prices
(8.2)
Advertise
Lower Prices
(4.6)
Firm 1
Firm 2
Not Advertise
O Not Advertise: Keep Prices
O Advertise: Lower Prices
O Not Advertise; Lower Prices
O Advertise: Keep Prices
Keep Prices
(6,10)
The subgame perfect Nash-equilibrium is
Lower Prices
(3,7)

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