Department of Economics
Economics 92, Principles of Microeconomics (Honors)
Homework: Subgame Perfect Equilibrium
In this game the firm Raider has entered the market for computer chip sets. Target has had the market to itself. Simultaneously Raider and Target must choose a price strategy: Hi or Lo. Subsequently Raider then chooses an advertising plan. If Raider observes that both firms have chosen the same price strategy then she chooses between running advertisements or running no ads. If the firms have chosen different price plans then there is no advertising. The payoffs are shown at the terminal ends of the game tree.