Question: Consider a tariff - setting game between three countries, A , B , and C . These countries are different sizes, and tariffs may have

Consider a tariff-setting game between three countries, A, B, and C. These countries are different sizes, and tariffs may have terms-of-trade effects (and deadweight losses). The left and right payoff matrices below indicate payoffs from combinations of B and Cs actions when A sets a tariff and when it does not, respectively. The game is played simultaneously, and payoffs are written (UA,UB,UC).
3.1 What is Cs best response if A plays No Tariff and B plays Tariff?1 Tariff
2 No Tariff
3.2 How many Nash equilibria does this game have?
For 3.3, suppose that before the game begins, B and C present A an offer: if you do not use a tariff, we will each give you 5 from whatever payoff we get.
3.3 What payoff does A end up getting in the Nash equilibrium?
For 3.4, suppose that before the game begins, B and C enter an international agreement to
split their payoffs evenly, regardless of the outcome.
3.4 What payoff does A end up getting in the Nash equilibrium?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!