With the opening of the new student union on the campus of UNR, three firms are contemplating opening retail food operations in the new union. The three firms considering opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich Shop. Given their national reputation, Starbucks has been given the first choice of whether to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will decide to open or not, followed by Joe's. State law prohibits the firms from signing any binding agreements concerning the division of profits. The possible outcomes and associated total payoffs from this game are shown in the table below. Starbuck: Open Starbuck: Not Open Starbuck: Open Starbuck: Not Open Joe's: Open Tully's Open 13, 5, 8 4, 12, 10 Joe's: Not Open Tully's Open 15, 10, 3 3, 12, 3 Tully's: Not Open 15, 6, 5 5, 3, 22 Tully's: Not Open 25, 2, 3 5, 5, 5 The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's. a. Draw the complete game tree for this situation. Be sure to accurately label the tree and include the payoffs. b. Assuming that all players will use backward induction (look forward and reason back), please clearly specify what each firm will do in this game and the ultimate outcome to the game.
With the opening of the new student union on the campus of UNR, three firms are contemplating opening retail food operations in the new union. The three firms considering opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich Shop. Given their national reputation, Starbucks has been given the first choice of whether to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will decide to open or not, followed by Joe's. State law prohibits the firms from signing any binding agreements concerning the division of profits. The possible outcomes and associated total payoffs from this game are shown in the table below. Starbuck: Open Starbuck: Not Open Starbuck: Open Starbuck: Not Open Joe's: Open Tully's Open 13, 5, 8 4, 12, 10 Joe's: Not Open Tully's Open 15, 10, 3 3, 12, 3 Tully's: Not Open 15, 6, 5 5, 3, 22 Tully's: Not Open 25, 2, 3 5, 5, 5 The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's. a. Draw the complete game tree for this situation. Be sure to accurately label the tree and include the payoffs. b. Assuming that all players will use backward induction (look forward and reason back), please clearly specify what each firm will do in this game and the ultimate outcome to the game.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:With the opening of the new student union on the campus of UNR, three firms are
contemplating opening retail food operations in the new union. The three firms considering
opening up shops include Starbucks, Tully's Coffee, and Joe's Java and Sandwich
Shop. Given their national reputation, Starbucks has been given the first choice of whether
to open up a shop in the new Union or not. After Starbucks makes their decision, Tully's will
decide to open or not, followed by Joe's. State law prohibits the firms from signing any
binding agreements concerning the division of profits. The possible outcomes and associated
total payoffs from this game are shown in the table below.
Starbuck: Open
Starbuck: Not Open
Starbuck: Open
Starbuck: Not Open
Joe's: Open
Tully's Open
13, 5, 8
4, 12, 10
Joe's: Not Open
Tully's Open
15, 10, 3
3, 12, 3
Tully's: Not Open
15, 6, 5
5, 3, 22
Tully's: Not Open
25, 2, 3
5, 5, 5
The first payoff in each cell is for Starbucks, second is Tully's, third is Joe's.
a. Draw the complete game tree for this situation. Be sure to accurately label the tree
and include the payoffs.
b.
Assuming that all players will use backward induction (look forward and reason
back), please clearly specify what each firm will do in this game and the ultimate
outcome to the game.
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