Calculate the efficient quality level under the assumption

Assignment Help Business Economics

Reference no: EM131095476

Consider a repeated game between a supplier (player 1) and a buyer (player 2). These two parties interact over an in nite number of periods. In each period, player 1 chooses a quality level q ∈ [0, 5] at cost q. Simultaneously, player 2 decides whether to purchase the good at a xed price of 6. If player 2 purchases, then the stage-game payoffs are 6 − q for player 1 and 2q − 6 for player 2. Here, player 2 is getting a benefit of 2q. If player 2 does not purchase, then the stage-game payoffs are − q for player 1 and 0 for player 2. Suppose that both players have discount factor d.

Calculate the efficient quality level under the assumption that transfers are possible (so you should look at the sum of payoffs).

For sufficiently large d, does this game have a subgame perfect Nash equilibrium that yields the efficient outcome in each period? If so, describe the equilibrium strategies and determine how large d must be for this equilibrium to exist.

Reference no: EM131095476

Questions Cloud

How much income tax payable did mckinley real estate report : How much income tax payable did McKinley Real Estate report on its balance sheet at December 31, 2013? How much income tax expense did McKinley report on its 2013 income statement?

Consider repeated game between supplier and buyer : Consider a repeated game between a supplier (player 1) and a buyer (player 2). These two parties interact over an in nite number of periods. In each period, player 1 chooses a quality level q ∈ [0, 5] at cost q. Simultaneously, player 2 decides wheth..

Goods versus services : FACTS: Fred and Zuma Palermo contacted Colorado Carpet Installation, Inc., for a price quotation on providing and installing new carpeting and tiling in their home. In response, Colorado Carpet submitted a written proposal to provide and install th..

Foreign country long-term interests : The prime minister of your chosen country feels that local infant industries must be protected through the use of trade restrictions. She believes that your product is part of an industry in which companies within her country should be given an advan..

Calculate the efficient quality level under the assumption : Consider a repeated game between a supplier (player 1) and a buyer (player 2). These two parties interact over an in nite number of periods. In each period, player 1 chooses a quality level q ∈ [0, 5] at cost q. Simultaneously, player 2 decides wheth..

How do the topics in inequality : How do the topics in Inequality for All affect students? Which topic in particular seems the most urgent/important to your audience, and what do you want to persuade them to think about it?

Difference between being pregnant in mind and in body : In The Symposium, Diotima says that women may be pregnant in body, while men may be pregnant in both body and mind. What does she mean by this? What is the difference between being pregnant in mind and in body? What are some examples of each type of ..

What is the full quotation and what does it mean : The title Where Angels Fear to Tread is taken from Alexander Pope’s An Essay on Criticism. What is the full quotation and what does it mean? How does this phrase describe the events that take place in this novel? Is this a good title for the novel? W..

Several different types of relationships : In Where Angels Fear to Tread, we see several different types of relationships. Identify a relationship corresponding to each of Aristotle’s three types of friendship. What is it about each relationship that causes it to fit into that particular type..

User Account

All Pages