Game Theory:
(prisoner's dilemma) Consider the following 2 x 2 pricing game, where rms choose whether to price High or Low simultaneously. Find the equilibrium in dominant strategies.
(coordination game) Consider the following 2 x 2 coordination game, where two rms (Firm A and Firm B) simultaneously choose product standard A or B. The payo matrix is given by
Find all Nash equilibria of this game.
(early-mover advantage) Again the two rms play the above coordination game. But now suppose Firm A moves rst. After observing Firm A's choice, Firm B subsequently chooses A or B. Draw the extensive form (game tree) of this game. Use backwards induction to identify the (subgame perfect) equilibrium.