There are two political parties, the red and the blue party. The elections are approaching and each party needs to choose an advertising level. The red party acts first. The advertising level can be low, medium or high. If one party selects medium advertising and the other high, the corresponding payoffs will be 20 and 80. If one party selects low advertising and the other medium, the corresponding payoffs will be 0 and 50. If one party selects low advertising and the other high, the corresponding payoffs will be 0 and 100. If both parties select the same level of advertising, low, medium or high, each party receives a payoff of 50, 70 and 80 accordingly. a) Draw the game tree. b) Solve the game and explain. c) Is there a first-mover advantage? Explain why (not).

There are two political parties, the red and the blue party. The elections are approaching and each party needs to choose an advertising level. The red party acts first. The advertising level can be low, medium or high. If one party selects medium advertising and the other high, the corresponding payoffs will be 20 and 80. If one party selects low advertising and the other medium, the corresponding payoffs will be 0 and 50. If one party selects low advertising and the other high, the corresponding payoffs will be 0 and 100. If both parties select the same level of advertising, low, medium or high, each party receives a payoff of 50, 70 and 80 accordingly. a) Draw the game tree. b) Solve the game and explain. c) Is there a first-mover advantage? Explain why (not).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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