Consider a 3 period sequential (alternating) bar gaining model where two players have to split a pie worth 1 (starting with player 1 making the offer) Now the players have different discount factors, 1 and 2 (a) Compute the outcome of the unique subgame perfect equilibrium (b) Show that when 1 2 then player 1 has an advantage (c) What conditions on 1,2 give player 2 an advantage Why

Question: Consider a 3-period sequential (alternating) bar- gaining model where two players have to split a pie worth 1 (starting with player 1 making the offer).

Consider a 3-period sequential (alternating) bar- gaining model where two players have to split a pie worth 1 (starting with player 1 making the offer). Now the players have different discount factors, δ1 and δ2.

(a) Compute the outcome of the unique subgame perfect equilibrium. (b) Show that when δ1 = δ2 then player 1 has an advantage.

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