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08 Dynamic Games Exercises

The document contains 3 exercises on dynamic games: the first is an extensive form game with 4 possible outcomes, the second modifies a game with incomplete information, and the third models a Stackelberg duopoly with one firm moving first under quadratic costs.

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31 views

08 Dynamic Games Exercises

The document contains 3 exercises on dynamic games: the first is an extensive form game with 4 possible outcomes, the second modifies a game with incomplete information, and the third models a Stackelberg duopoly with one firm moving first under quadratic costs.

Uploaded by

serigne mbacke konte
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Exercises Dynamic Games

Ferdinand M. Vieider

Department of Economics, University of Reading, UK

Ferdinand M. Vieider Exercises Dynamic Games


Exercise 1: Extensive form game

Consider the following extensive form finite horizon game:


1
L R
2 2
A B D C

(2, 1) (1, 1) (1, 0) (2, 0)

1 Write down the complete strategies for both players.


2 Find all the Nash equilibria of the game.
3 Which of the Nash-equilibria is subgame-perfect? And why?

Ferdinand M. Vieider Exercises Dynamic Games


Exercise 2: Extensive game with Incomplete Information
Take a look at the following modification of an example used in
class (the left subgame has been added to the original game):
1
L R
2 2
A B C D
1 1
E F E F G H G H

(2, 2) (3, 0) (0, 3) (1, 1) (2, 2) (0, 4) (4, 0) (1, 1)

1 Find all the subgame-perfect Nash equilibria of the game


2 Find all the Nash equilibria of the game: are all of them
subgame-perfect?
3 Now change the Payoffs following L-B-F to (2,2)—does this
change the equilibria of the game?
4 What if we change the payoffs in the first terminal node to
(4,4) relative to the original game—does this change the
equilibrium predictions?
Ferdinand M. Vieider Exercises Dynamic Games
Exercise 3 (Stackelberg duopoly with quadratic costs)

Two firms compete in a market, with firm 1 entering the


market one period before firm 2. Firm 2 observes firm 1’s
output decision before taking its own decision. Both firms face
linear inverse demand P(Q) = α − Q and quadratic costs
Ci (qi ) = qi2 .
1 Find the subgame-perfect Nash equilibrium of this duoply game
2 Compare the outcome with the outcome of the Cournot
duopoly assuming the same functional forms

Ferdinand M. Vieider Exercises Dynamic Games

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