credible to B? (c) What could firm A do to make its threat
credible without building excess capacity?
Froeb and McCann's Chapter 15:
a) Individual problems: 15-4 and 15-5.
Individual problem 15-4: The following represents the
potential outcomes of your first salary negotiation after
graduation: Assuming this is sequential move game with
the employer moving first, indicate the most likely
outcome. Does the ability to move first give the employer
an advantage? If so, how? As the employee, is there
anything you could do to realize a higher payoff?
Individual problem 15-5: Every year, management and
labor renegotiate a new employment contract by sending
the proposals to an arbitrator who chooses the best
proposal (effectively giving one side or the other $1
million). Each side can choose to hire, or not hire, an
expensive labor lawyer (at the cost of $200,000) who is
effective at preparing the proposal in the best light. If
neither hires lawyers or if both hire lawyers, each side can
expect to with about half of the time. If only one side hires
a lawyer, it can expect to win three-quarters of the time.
a) Diagram this simultaneous move game
b) What is the Nash Equilibrium of the game?
c) Would the sides want to ban lawyers?
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