Player 1 is an Internet service provider and Player 2 is a potential customer. They consider entering into a contract of service for a period of time. The provider decides between two levels of service: High or Low. The potential customer decides whether to Buy or Not Buy. When the potential customer calls customer service, the Internet service provider makes the initial offer. The potential customer then decides whether to Buy or Not Buy. Let’s say that the interaction ends after the potential customer makes their decision. a. Set up the extensive form according to the following outcomes: i. If the Internet service provider offers Low and the potential customer doesn’t buy, they both make off with 1. ii. If the Internet service provider offers Low and the potential customer buys, the Internet service provider makes off with 3, and the customer receives 0. iii. If the Internet service provider offers High and the potential customer doesn’t buy, the Internet service provider makes off with 0, and the customer receives 1. iv. If the Internet service provider offers High and the potential customer buys, the Internet service provider makes off with 2, and the customer receives 2. b. Solve for the SPNE. c. Are there any non-credible threats? Why might this be, or why not
Player 1 is an Internet service provider and Player 2 is a potential customer. They consider entering into a contract of service for a period of time. The provider decides between two levels of service: High or Low. The potential customer decides whether to Buy or Not Buy. When the potential customer calls customer service, the Internet service provider makes the initial offer.
The potential customer then decides whether to Buy or Not Buy. Let’s say that the interaction ends after the potential customer makes their decision.
a. Set up the extensive form according to the following outcomes:
i. If the Internet service provider offers Low and the potential customer doesn’t buy, they both make off with 1.
ii. If the Internet service provider offers Low and the potential customer buys, the Internet service provider makes off with 3, and the customer receives 0.
iii. If the Internet service provider offers High and the potential customer doesn’t buy, the Internet service provider makes off with 0, and the customer receives 1.
iv. If the Internet service provider offers High and the potential customer buys, the Internet service provider makes off with 2, and the customer receives 2.
b. Solve for the SPNE.
c. Are there any non-credible threats? Why might this be, or why not?
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