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Adverse selection:-
Firm A (the "acquirer") is considering taking over firm T (the "target"). It does not know firm T's value; it believes that this value, when firm T is controlled by its own management, is at least $0 and at most $100, and assigns equal probability to each of the 101 dollar values in this range.
Firm T will be worth 50% more under firm A's management than it is under its own management. Suppose that firm A bids y to take over firm T, and firm T is worth x (under its own management).
Then if T accepts A's offer, A's payoff is 3/2 x - y and T's payoff is y; if T rejects A's offer, A's payoff is 0 and T's payoff is x.
Model this situation as a Bayesian game in which firm A chooses how much to offer and firm T decides the lowest offer to accept. Find the Nash equilibrium (equilibria?) of this game. Explain why the logic behind the equilibrium is called adverse selection.
Player 1 has the following set of strategies {A1;A2;A3;A4}; player 2’s set of strategies are {B1;B2;B3;B4}. Use the best-response approach to find all Nash equilibria.
A supplier and a buyer, who are both risk neutral, play the following game, The buyer’s payoff is q^'-s^', and the supplier’s payoff is s^'-C(q^'), where C() is a strictly convex cost function with C(0)=C’(0)=0. These payoffs are commonly known.
Pertaining to the matrix need simple and short answers, Find (a) the strategies of the firm (b) where will the firm end up in the matrix equilibrium (c) whether the firm face the prisoner’s dilemma.
Consider the two-period repeated game in which this stage game is played twice and the repeated-game payo s are simply the sum of the payo s in each of the two periods.
Two players, Ben and Diana, can choose strategy X or Y. If both Ben and Diana choose strategy X, every earns a payoff of $1000.
The market for olive oil in new York City is controlled by 2-families, Sopranos and Contraltos. Both families will ruthlessly eliminate any other family that attempts to enter New York City olive oil market.
Following is a payoff matrix for Intel and AMD. In each cell, 1st number refers to AMD's profit, while second is Intel's.
Determine the solution to the given advertising decision game between Coke and Pepsi, assuming the companies act independently.
Little Kona is a small coffee corporation that is planning entering a market dominated through Big Brew. Each corporation's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price.
Suppose you and your classmate are assigned a project on which you will earn one combined grade. You each wish to receive a good grade, but you also want to avoid hard work.
Consider trade relations in the United State and Mexico. Suppose that leaders of two countries believe the payoffs to alternative trade policies are as follows:
Use the given payoff matrix for a simultaneous move one shot game to answer the accompanying questions.
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