Question

a) (15 points) What is the subgame perfect Nash equilibrium pricing policy for Tony (convince me that it’s SPNE)? What is Tony’s payoff? Be sure to list all the reasonable options that Tony has for pricing and what his related payoffs would be.

Answer 1

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