Consider the following modified Cournot-game. Firm 2 is run by its owner whereas Firm 1 is run by a manager whose preferences are represented by the following payoff function u(91, 92) = II₁ (91, 92) + aq₁ and the marked demand function is P = 1 - Q. The game is played as follows. In the first stage the owner of the Firm 1 chooses 0 < a < 1. Then the manager of Firm 1 and the owner of Firm 2 observes a and choose q₁ and q2 to maximize u and II₂ respectively. What are the subgame-perfect equilibrium levels of a, q₁ and 92?

Consider the following modified Cournot-game. Firm 2 is run by its owner whereas Firm 1 is run by a manager whose preferences are represented by the following payoff function u(91, 92) = II₁ (91, 92) + aq₁ and the marked demand function is P = 1 - Q. The game is played as follows. In the first stage the owner of the Firm 1 chooses 0 < a < 1. Then the manager of Firm 1 and the owner of Firm 2 observes a and choose q₁ and q2 to maximize u and II₂ respectively. What are the subgame-perfect equilibrium levels of a, q₁ and 92?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.1P

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