Thanks to visit codestin.com
Credit goes to www.scribd.com

Scribd
Upload
38 views2 pages

Part B Problem Set 3

The document presents Problem Set 3 for the course EC005: Introduction to Game Theory, containing three questions related to game theory concepts. The first question involves determining the conditions for a subgame-perfect equilibrium in a simultaneous-move game played twice. The subsequent questions explore the infinitely repeated prisoners' dilemma and Bertrand's model of duopoly, focusing on strategy profiles and discount factors for equilibrium analysis.

Uploaded by

praroy030
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
38 views2 pages

Part B Problem Set 3

The document presents Problem Set 3 for the course EC005: Introduction to Game Theory, containing three questions related to game theory concepts. The first question involves determining the conditions for a subgame-perfect equilibrium in a simultaneous-move game played twice. The subsequent questions explore the infinitely repeated prisoners' dilemma and Bertrand's model of duopoly, focusing on strategy profiles and discount factors for equilibrium analysis.

Uploaded by

praroy030
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

C OURSE EC005: I NTRODUCTION TO G AME T HEORY

P ROBLEM S ET 3

Q.1. (Gibbons, Exercise 2.10, page 134). The accompanying simultaneous-move game is played
twice, with the outcome of the first stage observed before the second stage begins. There is no
discounting. The variable x is greater than 4; so that (4, 4) is not an equilibrium payoff in the
one-shot game.

For what values of x is the following strategy profile a subgame- perfect equilibrium?

Play Qi in the first stage. If the first-stage outcome is (Q1 , Q2 ), play Pi in the second stage. If the
first-stage outcome is (y, Q2 ) where y 6= Q1 ; play Ri in the second stage. If the first-stage outcome
is (Q1 , z) where z 6= Q2 ; play Si in the second stage. If the first-stage outcome is (y, z) where
y 6= Q1 and z 6= Q2 ; play Pi in the second stage.

1
2
E S
E 3, 3 −1, 4
1
S 4, −1 1, 1

Table 1: Q.2. Stage Game

Q.2. Consider the following infinitely repeated prisoners’ dilemma with discount factor δ, in which
the payoffs of the stage game are given in Table 1.

Consider the following Tit for Tat strategy profile σ: The players start by playing (E, E). And, at
every t-history ht , if the last-played action profile at−1 = (A, B), where A and B are any of the
two available actions to the players, then σ(ht ) = (B, A). That is, play now what the other player
played in the previous period.

Find the set of discount factors δ for which this strategy profile is a subgame-perfect equilibrium,
or establish that there is no δ for which it is a subgame-perfect equilibrium.

Q.3. Consider Bertrand’s model of duopoly in the case that each firm’s unit cost is constant, equal
to c. Let π m (p) = (p − c)D(p) for any price p, and assume that π is continuous and is uniquely
maximized at the price pm (the “monopoly price”). Let σ be the strategy profile for the infinitely
repeated game that charges pm at time t = 0, and subsequently as long as both firms continue to
charge pm , and punishes any deviation from pm by either firm by choosing the price c for k periods,
then reverting to pm . Given any value of δ, for what values of k is the strategy pair (s, s) a subgame
perfect equilibrium of the infinitely repeated game?

You might also like