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deterrent threat by firm A to lower the price 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?