Answered: Please find herewith a payoff matrix.…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.7P

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Question

Please find herewith a payoff matrix. In each cell you find the payoffs of the players associated with a particular strategy combination: The first entry is the payoff of player 1, the second entry is the payoff of player2.

		Player 2
		t1	t2	t3
Player 1	S1	3, 4	1, 0	5, 3
	S2	0, 12	8, 12	4, 20
	S3	2, 0	2, 11	1, 0

Suppose both players select their strategies (S1, S2 or S3 for player 1 and t1, t2 or t3 for player 2) simultaneously and that the game is played once. In your explanation to the questions below, please do refer to the figures in the matrix.

Suppose player 2 could move before player 1 (i.e. has a first mover advantage). In your explanation to the questions below, please do refer to the figures in the matrix.

What strategy would (s)he select?
Is it really an ‘advantage’ for player 2 to move first? Or does player 2 benefit from being the second mover (and hence player 1 moving first)? I.e. for this question, do not make a comparison to the outcome of the simultaneous move game.
How much would player 2 want to pay to player 1 to be a first mover compared to moving simultaneously and assuming this were legal?

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