2) [25 pts] Firm 1 and firm 2 must implement a policy d from a set...
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2) [25 pts] Firm 1 and firm 2 must implement a policy d from a set of possible policies D. After d is installed, it will affect the payoff function for each firm according to concave functions II and II₂. Assume that the policy that maximizes firm j's payoff is d; and d* maximizes II₁+II₂, where d₁ ‡ d₂ ‡ d*. Also, assume that firm 1 has the right to impose d and firm 2 can make a take-it-or-leave-it offer to firm 1 in the form of a transfer t(d) to induce firm 1 to implement d. a) What is t(d₁) and why is the offer a function of d? Explain. b) Calculate the value of the right that firm 1 is given. c) Explain if it is possible for firm 2 to implement d₂. Assume that if firm 1 is indifferent between accepting an offer or not them he will accept. 2) [25 pts] Firm 1 and firm 2 must implement a policy d from a set of possible policies D. After d is installed, it will affect the payoff function for each firm according to concave functions II and II₂. Assume that the policy that maximizes firm j's payoff is d; and d* maximizes II₁+II₂, where d₁ ‡ d₂ ‡ d*. Also, assume that firm 1 has the right to impose d and firm 2 can make a take-it-or-leave-it offer to firm 1 in the form of a transfer t(d) to induce firm 1 to implement d. a) What is t(d₁) and why is the offer a function of d? Explain. b) Calculate the value of the right that firm 1 is given. c) Explain if it is possible for firm 2 to implement d₂. Assume that if firm 1 is indifferent between accepting an offer or not them he will accept.
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Related Book For
Managerial Economics and Strategy
ISBN: 978-0321566447
1st edition
Authors: Jeffrey M. Perloff, James A. Brander
Posted Date:
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