Scribd
Upload
2 views

problem_set_5

Uploaded by

Asteroid Destroyer
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
2 views

problem_set_5

Uploaded by

Asteroid Destroyer
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Problem 1

Stage game

b1 b2
a1 4; 4 0; 5
a2 5; 0 1; 1
(a) List, for each player, the set of (pure) strategies in the stage game consistent with rationalizability.
(b) Find Nash equilibrium.
(c) Stage game is repeated five times without discounting (δ = 1). For each pure-strategy profile in the stage game, find
a pure-strategy subgame-perfect equilibrium of the repeated game in which the players play this strategy profile in the
first of five rounds of the repeated game.
(d) Suppose game is played infinitely many times. Can strategy profile (a1 , b1 ) in every period be sustained as a subgame-
perfect Nash equilibrium? Assume 0 < δ < 1 and find the critical value for δ. (Consider trigger strategy.)

Problem 2
Now consider the game where the above stage game is repeated infinitely many times and the players have a common discount
factor δ ∈ (0, 1). The following are strategy profiles for this repeated game. For each of them, check if it is a subgame-
perfect Nash equilibrium for large values of δ, and if so, find the lowest discount factor that makes the strategy profile a
subgame-perfect equilibrium.
1. No matter what happens, player 1 always cooperates and player 2 always deviates.
2. At any time t, player 2 cooperates if and only if player 1 cooperates at t, and player 1 always cooperates.
3. At t = 0, player 1 cooperates and player 2 cooperates no matter what. At any time t > 0, player 1 cooperates if and
only if player 2 cooperated at all previous dates, and player 2 cooperates if and only if he has cooperated at all previous
dates.
4. At t = 0, player 1 cooperates and player 2 cooperates if and only if player 1 cooperates. At any time t > 0, player 1
cooperates if and only if player 2 cooperated at previous dates at which player 1 cooperated, and player 2 cooperates if
and only if player 1 cooperated at t and player 2 himself cooperated at all previous dates at which player 1 cooperated.

Problem 3
Stage game

b1 b2 b3
a1 1; 1 5; 0 0 ; −2
a2 0; 5 4; 4 −1 ; 0
a3 −2 ; 0 0 ; −1 3; 3
(a) List, for each player, the set of (pure) strategies in the stage game consistent with rationalizability.
(b) List, for each player, the set of (pure) strategies in the stage game remaining after the iterated deletion of weakly
dominated strategies.
(c) Find all Nash equilibria of the stage game.
(d) Suppose game is played infinitely many times and players play trigger strategies. Find the value for δ for which (a2 , b2 )
can be sustained as an SPNE.

Problem 4
Consider the following normal form game:

C D
C 4, 4 0, 6
Player 1
D 6, 0 1, 1
Assume the above stage game is played infinitely many times. After each round, players observe the moves of the other.
The total payoffs are the discounted sums of stage payoffs with discount factor δ = 12 . Consider the strategy profile: both
players play (C, C) until someone deviates. If someone deviates, then in the following period both play (D, D) for n periods.
After n periods of punishment, both players return to the initial strategy.
For what values of n does this strategy profile constitute a subgame-perfect Nash equilibrium?

1
Problem 5
Consider two firms competing as Cournot oligopolists in a market with demand:

p(q1 , q2 ) = a − bq1 − bq2


Both firms have total costs T C(qi ) = cqi where c > 0 is the marginal cost of production, and a > c.
Part (a) Considering that firms only interact once (unrepeated Cournot game), find the equilibrium output, market price, and
equilibrium profits for each firm.
Part (b) Now assume they could form a cartel. What output should each firm produce to maximize cartel profits? Find market
price and profits. Are profits higher than in Cournot competition?
Part (c) Can the cartel agreement be supported as the (cooperative) outcome of the infinitely repeated game?

You might also like