Game Theory 8. Refer to the extensive-form game of price competition shown below.(100, 100)SoftBEntryHardA(-10, 50)Stay Out(0, 200)Firm B is the incumbent facing potential entry from its rival, firm A. Firm A's strategies consist of {entry, stayout}. Firm B's strategies are then {hard if entry; hard if stay out; soft if entry; soft if stay out}. Find the subgameNash equilibrium to this game, if one exists.A. Firm A plays {stay out}; firm B plays {hard if entry}.B. Firm A plays {entry}; firm B plays {hard if entry}.C. Firm A plays {entry}; firm B plays {soft if entry}.D. There is no subgame Nash equilibrium to this game.

Nash equilibrium occurs where the each player takes the best course of action provided the actions…

Answered: 8. Refer to the extensive-form game of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Game Theory

8. Refer to the extensive-form game of price competition shown below.
(100, 100)
Soft
B
Entry
Hard
A
(-10, 50)
Stay Out
(0, 200)
Firm B is the incumbent facing potential entry from its rival, firm A. Firm A's strategies consist of {entry, stay
out}. Firm B's strategies are then {hard if entry; hard if stay out; soft if entry; soft if stay out}. Find the subgame
Nash equilibrium to this game, if one exists.
A. Firm A plays {stay out}; firm B plays {hard if entry}.
B. Firm A plays {entry}; firm B plays {hard if entry}.
C. Firm A plays {entry}; firm B plays {soft if entry}.
D. There is no subgame Nash equilibrium to this game.

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions