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)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Look back at Figure Suppose that the two firms switch places—the firm that was the follower now gets to go first while the firm that was the leader now has to go second. The new subgame perfect Nash equilibrium will lead to terminal node: a. A. b. B. c. C. d. D.
Transcribed Image Text: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)
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