The firms Ford Motor and General Motors (GM) are bargaining over the selling price of Ford's...
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The firms Ford Motor and General Motors (GM) are bargaining over the selling price of Ford's luxury cars division, which GM is willing to buy. For Ford, the division has a value of 2 billions of euros, while it worth 4 billion euros for GM. In the first meeting, the two firms agreed on the following bargaining procedure: in the first negotiation round one of them offers a price, and then the other decides either to accept, in which case the negotiation is over, or to reject, and they move to the next negotiation round. In the second round, the firm that reject the initial offer makes a new offer that must be accepted or rejected by the other firm. But now, in case that the offer is rejected, the negotiation ends, and both gets zero (while Ford keeps the division). We assume that in any case where a firm is indifferent between accepting and rejecting an offer, it accepts. Finally, the two firms give the same value for future or present payments. a) For the case where Ford is the first to offer a price, draw the extensive form of the game, clearly showing the information sets, the strategies and the payoffs. Find the subgame perfect Nash equilibrium. b) If GM starts offering the price in the first round, what price it will offer in a subgame perfect Nash equilibrium? The firms Ford Motor and General Motors (GM) are bargaining over the selling price of Ford's luxury cars division, which GM is willing to buy. For Ford, the division has a value of 2 billions of euros, while it worth 4 billion euros for GM. In the first meeting, the two firms agreed on the following bargaining procedure: in the first negotiation round one of them offers a price, and then the other decides either to accept, in which case the negotiation is over, or to reject, and they move to the next negotiation round. In the second round, the firm that reject the initial offer makes a new offer that must be accepted or rejected by the other firm. But now, in case that the offer is rejected, the negotiation ends, and both gets zero (while Ford keeps the division). We assume that in any case where a firm is indifferent between accepting and rejecting an offer, it accepts. Finally, the two firms give the same value for future or present payments. a) For the case where Ford is the first to offer a price, draw the extensive form of the game, clearly showing the information sets, the strategies and the payoffs. Find the subgame perfect Nash equilibrium. b) If GM starts offering the price in the first round, what price it will offer in a subgame perfect Nash equilibrium?
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a The extensive form of the game is as follows Ford offers a price of 2 billion euros in the first r... View the full answer
Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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