The Alpha and Beta companies are the only producers of digital cameras. They must both decide whether to invest in a new production process. Therefore, each company must make the decisions to invest or not invest. Profits for both companies are affected by the decisions on what decisions they might make and the payoffs in billions of dollars are given in the table below. Company Beta Invest Do Not Invest Invest $13 $2 $15 $0 Company Alpha Do Not Invest $10 $5 $13 $2 Suppose we have the same payoff matrix except now Company Alpha makes the first move by deciding to go first with the decision to invest. a. Explain the essential difference between games in which moves are simultaneous and those in which moves are sequential. b. Construct (draw) an extensive-form game diagram that summarizes all the information of the game and provide explanations. c. What is the Nash equilibrium for this sequential game? Use your diagram from part b to answer this question. d. Is there a first-mover advantage or first-mover disadvantage in this game? Explain.

The Alpha and Beta companies are the only producers of digital cameras. They must both decide whether to invest in a new production process. Therefore, each company must make the decisions to invest or not invest. Profits for both companies are affected by the decisions on what decisions they might make and the payoffs in billions of dollars are given in the table below. Company Beta Invest Do Not Invest Invest $13 $2 $15 $0 Company Alpha Do Not Invest $10 $5 $13 $2 Suppose we have the same payoff matrix except now Company Alpha makes the first move by deciding to go first with the decision to invest. a. Explain the essential difference between games in which moves are simultaneous and those in which moves are sequential. b. Construct (draw) an extensive-form game diagram that summarizes all the information of the game and provide explanations. c. What is the Nash equilibrium for this sequential game? Use your diagram from part b to answer this question. d. Is there a first-mover advantage or first-mover disadvantage in this game? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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