a) (15 points) What is the subgame perfect Nash equilibrium pricing policy for Tony (convince me that it’s SPNE)? What is Tony’s
1 answer:
Answer:
Hello attached below is the complete question
Answer:
Backward induction
Tony's payoff = 1800
Explanation:
Subgame Perfect Nash equilibrium pricing policy is a refined version of Nash Equilibrium and the subgame perfect Nash Equilibrium pricing policy that Tony uses is Backward Induction
As seen from the different periods Tony depends on the price of the previous periods to determine the the price of the next period in other to maximize his payoff
The pricing at p2 will be in such a way that buyer L1, L2 will purchase the Good at P2 ( $200 ) hence the payoff for the seller ( Tony ) will be = 200 *2
In period 1 the change in price will be in such a way that the buyer will purchase the good hence the payoff for Tony = 1400 * 1
This is an SPNE because ( p1, p2 ) = (1400, 200) which is determined using Backward induction
Tony's payoff = ( 1400 + 400 ) = 1800
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