FIGURE 14.8 Extensive form representation of leader- follower (Stackelberg duopoly) game. There is a Leader firm and a Follower firm that sequentially must decide on their respective factory sizes. The Leader firm moves first at decision node L. Leader (L) Follower (F) Profits moves first moves second (L, F) Make 7,000 • A (150, 210) The Follower firm moves second, starting from either decision node F, or decision node F, (depending on the Leader firm's Make 5,000 decision at decision node L). Each firm wishes to make as much money as possible, but knows that there is a trade-off between producing more cars and reducing the market price per vehicle. F1 Make 12.00O B (100, 120) Moving from right to left, backward induction indicates that the subgame perfect Nash equilibrium corresponds to the path indicated by the bold line segments. Make 5,000 C (100, 50) Make 10,000 Make 7,000 D (200, 140)

FIGURE 14.8 Extensive form representation of leader- follower (Stackelberg duopoly) game. There is a Leader firm and a Follower firm that sequentially must decide on their respective factory sizes. The Leader firm moves first at decision node L. Leader (L) Follower (F) Profits moves first moves second (L, F) Make 7,000 • A (150, 210) The Follower firm moves second, starting from either decision node F, or decision node F, (depending on the Leader firm's Make 5,000 decision at decision node L). Each firm wishes to make as much money as possible, but knows that there is a trade-off between producing more cars and reducing the market price per vehicle. F1 Make 12.00O B (100, 120) Moving from right to left, backward induction indicates that the subgame perfect Nash equilibrium corresponds to the path indicated by the bold line segments. Make 5,000 C (100, 50) Make 10,000 Make 7,000 D (200, 140)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.7P

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