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With the opening of the new student union on the campus of UNR, three firms are contemplating opening retail food operations in the new union. The three firms considering opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich Shop. Given their national reputation, Starbucks has been given the first choice of whether to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will decide to open or not, followed by Joe's. State law prohibits the firms from signing any binding agreements concerning the division of profits. The possible outcomes and associated total payoffs from this game are shown in the table below. Starbuck: Open Starbuck: Not Open Starbuck: Open Starbuck: Not Open Joe's: Open Tully's Open 13, 5, 8 4, 12, 10 Joe's: Not Open Tully's Open 15, 10, 3 3, 12, 3 Tully's: Not Open 15, 6, 5 5, 3, 22 Tully's: Not Open 25, 2, 3 5, 5, 5 The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's. a. Draw the complete game tree for this situation. Be sure to accurately label the tree and include the payoffs. b. Assuming that all players will use backward induction (look forward and reason back), please clearly specify what each firm will do in this game and the ultimate outcome to the game.

With the opening of the new student union on the campus of UNR, three firms are contemplating opening retail food operations in the new union. The three firms considering opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich Shop. Given their national reputation, Starbucks has been given the first choice of whether to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will decide to open or not, followed by Joe's. State law prohibits the firms from signing any binding agreements concerning the division of profits. The possible outcomes and associated total payoffs from this game are shown in the table below. Starbuck: Open Starbuck: Not Open Starbuck: Open Starbuck: Not Open Joe's: Open Tully's Open 13, 5, 8 4, 12, 10 Joe's: Not Open Tully's Open 15, 10, 3 3, 12, 3 Tully's: Not Open 15, 6, 5 5, 3, 22 Tully's: Not Open 25, 2, 3 5, 5, 5 The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's. a. Draw the complete game tree for this situation. Be sure to accurately label the tree and include the payoffs. b. Assuming that all players will use backward induction (look forward and reason back), please clearly specify what each firm will do in this game and the ultimate outcome to the game.

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter8: Game Theory
Section: Chapter Questions
Problem 8.9P
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With the opening of the new student union on the campus of UNR, three firms are contemplating opening retail food operations in the new union. The three firms considering opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich Shop. Given their national reputation, Starbucks has been given the first choice of whether to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will decide to open or not, followed by Joe's. State law prohibits the firms from signing any binding agreements concerning the division of profits. The possible outcomes and associated total payoffs from this game are shown in the table below. Starbuck: Open Starbuck: Not Open Starbuck: Open Starbuck: Not Open Joe's: Open Tully's Open 13, 5, 8 4, 12, 10 Joe's: Not Open Tully's Open 15, 10, 3 3, 12, 3 Tully's: Not Open 15, 6, 5 5, 3, 22 Tully's: Not Open 25, 2, 3 5, 5, 5 The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's. a. Draw the complete game tree for this situation. Be sure to accurately label the tree and include the payoffs. b. Assuming that all players will use backward induction (look forward and reason back), please clearly specify what each firm will do in this game and the ultimate outcome to the game.
Transcribed Image Text:With the opening of the new student union on the campus of UNR, three firms are contemplating opening retail food operations in the new union. The three firms considering opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich Shop. Given their national reputation, Starbucks has been given the first choice of whether to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will decide to open or not, followed by Joe's. State law prohibits the firms from signing any binding agreements concerning the division of profits. The possible outcomes and associated total payoffs from this game are shown in the table below. Starbuck: Open Starbuck: Not Open Starbuck: Open Starbuck: Not Open Joe's: Open Tully's Open 13, 5, 8 4, 12, 10 Joe's: Not Open Tully's Open 15, 10, 3 3, 12, 3 Tully's: Not Open 15, 6, 5 5, 3, 22 Tully's: Not Open 25, 2, 3 5, 5, 5 The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's. a. Draw the complete game tree for this situation. Be sure to accurately label the tree and include the payoffs. b. Assuming that all players will use backward induction (look forward and reason back), please clearly specify what each firm will do in this game and the ultimate outcome to the game.
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