Credible threats and commitment
1.[2p] A subgame perfect equilibrium is a strategy profile that
A subgame perfect equilibrium is a strategy profile that
The answer is: induces a Nash equilibrium in every subgame, including those never reached
The answer is: induces a Nash equilibrium in every subgame, including those never reached
The answer is: induces a Nash equilibrium in every subgame, including those never reached
2.[3p] In the entry game, why is (Out, Fight) a Nash equilibrium but not a subgame perfect one?
In the entry game, why is (Out, Fight) a Nash equilibrium but not a subgame perfect one?
The answer is: The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate
The answer is: The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate
The answer is: The entrant stays out, so the incumbent's plan is never tested, but in the subgame after entry the incumbent would accommodate
3.[3p] Staying out pays the incumbent 10, fighting an entrant pays 2 and accommodating pays 5. Capacity costing adds 5 to the payoff from fighting. At what is the incumbent exactly indifferent between buying it and not?
Staying out pays the incumbent 10, fighting an entrant pays 2 and accommodating pays 5. Capacity costing adds 5 to the payoff from fighting. At what is the incumbent exactly indifferent between buying it and not?
4.[2p] Because the capacity is a sunk cost by the time entry occurs, its price has no effect on whether the incumbent would actually fight.
Because the capacity is a sunk cost by the time entry occurs, its price has no effect on whether the incumbent would actually fight.
The answer is: True
5.[2p] A commitment device works only if it
A commitment device works only if it
The answer is: is observable by the other side and cannot be quietly reversed
The answer is: is observable by the other side and cannot be quietly reversed
The answer is: is observable by the other side and cannot be quietly reversed
6.[2p] A chain store faces one potential entrant in each of 20 towns in sequence. In subgame perfect equilibrium, in how many towns does it fight?
A chain store faces one potential entrant in each of 20 towns in sequence. In subgame perfect equilibrium, in how many towns does it fight?
7.[3p] Which repairs restore deterrence in the chain store setting?
Which repairs restore deterrence in the chain store setting?
Select all that apply
The answer is: Removing the known final town, so the sequence has no last round to unravel from, A small chance that the chain is the kind that simply enjoys fighting, Making the payoff from fighting larger than the payoff from accommodating
8.[3p] Match each commitment device to how it works.
Match each commitment device to how it works.
Sinking the boats
Penalty clause
Delegation to an agent
Brinkmanship
replacing your preferences with someone else's
making a preference into a verifiable obligation
raising the chance of an outcome nobody would choose
removing your own option to retreat
Show the answer
Sinking the boats: removing your own option to retreat Penalty clause: making a preference into a verifiable obligation Delegation to an agent: replacing your preferences with someone else's Brinkmanship: raising the chance of an outcome nobody would choose
9.[1p] Every subgame perfect equilibrium is a Nash equilibrium.
Every subgame perfect equilibrium is a Nash equilibrium.
The answer is: True