NBA players and owners are in negotiations of how to split the $4BB in revenue next year. The negotiations proceed in two periods. Today, players can make an offer of the share they get to keep and owners can accept or reject. If they reject, owners will take a week to make a counteroffer, which then the players can accept or reject. If players reject the owner's offer, the season is called off. Meanwhile, when the first week passes revenue falls by $0.5BB as the preseason is lost?


How is the revenue split in equilibrium? What happens if there is a third period a week later, when another $0.5BB is lost but players get to make a second offer? (HINT: Think about backward induction the same way we did to see why collusion can't last. Start with the last period!)

Answer rating: 100% (QA)

The revenue split in the equilibrium can be determined by using backward induction Backward induction is a method of solving sequential decision probl... View the full answer