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    PS 3

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    alikberovaadelia
    This document contains instructions for a homework assignment due October 19th at 9 pm. It provides 3 problems to solve involving game theory concepts. Problem 1 involves a game with an incumbent, challenger, and regulator where the players make sequential moves. Problem 2 analyzes a Hotteling model of price competition between two firms. Problem 3 examines a quantity competition game where firms can obtain priority status before competing. Students are asked to find extensive forms, strategies, subgame perfect Nash equilibria, normal forms, and Nash equilibria for the problems.

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    PS 3

    Uploaded by

    alikberovaadelia
    9 views2 pages
    This document contains instructions for a homework assignment due October 19th at 9 pm. It provides 3 problems to solve involving game theory concepts. Problem 1 involves a game with an incumbent, challenger, and regulator where the players make sequential moves. Problem 2 analyzes a Hotteling model of price competition between two firms. Problem 3 examines a quantity competition game where firms can obtain priority status before competing. Students are asked to find extensive forms, strategies, subgame perfect Nash equilibria, normal forms, and Nash equilibria for the problems.

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    This document contains instructions for a homework assignment due October 19th at 9 pm. It provides 3 problems to solve involving game theory concepts. Problem 1 involves a game with an incumbent, challenger, and regulator where the players make sequential moves. Problem 2 analyzes a Hotteling model of price competition between two firms. Problem 3 examines a quantity competition game where firms can obtain priority status before competing. Students are asked to find extensive forms, strategies, subgame perfect Nash equilibria, normal forms, and Nash equilibria for the problems.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views2 pages

    PS 3

    Uploaded by

    alikberovaadelia
    This document contains instructions for a homework assignment due October 19th at 9 pm. It provides 3 problems to solve involving game theory concepts. Problem 1 involves a game with an incumbent, challenger, and regulator where the players make sequential moves. Problem 2 analyzes a Hotteling model of price competition between two firms. Problem 3 examines a quantity competition game where firms can obtain priority status before competing. Students are asked to find extensive forms, strategies, subgame perfect Nash equilibria, normal forms, and Nash equilibria for the problems.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    DUE TO OCT 19, 9 pm.

    Please submit your work electronically at


    https://forms.gle/HYtUEu6R6z8ooT9x5

    Problem 1. Consider a game with three players: an incumbent (I), a challenger (C) and a
    regulator (R).

    - First, C decides to enter (E) or not (N). If C did not enter, the players receive C : $0, I : $2
    and R : $0.

    - If C entered, then I can either fight (F), accommodate (A) or propose to collude (Coll). If
    I decided to fight, the players receive C : −$1, I : −$1 and R : $0, otherwise, they get C : $1,
    I : $1 and R : $0.

    - If the collusion was proposed, then C decides to agree (Ag) or disagree (D).

    - Upon reaching the agreement, the regulator can either fine both firms (Fn) or nor (NF).
    IF R fined the firms, the players receive C : −$1, I : −$1 and R : $1, otherwise, they get
    C : $3/2, I : $3/2 and R : $0.

    - If C did not agree, then I can either fight (F’) or accommodate (A’). If I decided to fight,
    the players receive C : −$1, I : −$1 and R : $0, otherwise, they get C : $1, I : $1 and R : $0.

    a) Draw an extensive form of this game.

    b) List all strategies for every player.

    c) Find all SPNE.

    d) Draw a normal form of this game.

    e) Find all NE.

    Problem 2. Consider a Hotteling model with two firms i = 1, 2 located at e1 = 0 and e2 = 1


    of the unit interval, firms i’s has a cost function Ci (q) = q3 . Assume that unit demand consumers
    are evenly spread out along the unit interval. A consumer located at x ∈ [0, 1] who purchases
    the good from i at a price pi enjoys a payoff of w − (x − ei )2 − pi where w > 0 is her willingness
    to pay for the good.

    a) Suppose that w is large, so that no firm can be a local monopoly. Find a symmetric NE
    when the firms simultaneously post their prices.

    b) Suppose the firms collude and set the same price p1 = p2 = p to maximize the sum of their
    profits.

    1
    Problem 3. There are two firms indexed by i = 1, 2 who are considering entering an industry
    with a demand function p(Q) = 1 −Q, both firms produce a homogeneous good at no costs. First,
    the firms decide simultaneously whether or not to obtain a priority ai ∈ {priority, none} which
    costs F = 1/100. Then, upon entering the industry, the firms compete in quantities:

    - the firms simultaneously set quantities (Cournot) if their priorities agree (a1 = a2 ),

    - the firm with a higher priority moves first (Stackelberg) if their priority disagree (a1 , a2 ).

    a) Find both firms’ equilibrium profits πi (ai , a j ) for every combination of their priorities.

    b) Consider the simultaneous move game where the firms choose ai ∈ {priority, none} and
    receive profits πi (ai , a j ) − F × 1{ai = priority}. Find all pure NE of this game.

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