Imagine a situation where two firms need to choose a price to position themselves in a...

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Imagine a situation where two firms need to choose a price to position themselves in a market. This pricing decision is not done simultaneously but sequentially. Firm 1 is the first to choose and have three options: low, medium or high price. Based on the choice of Firm 1, now Firm 2 can decide its price choice. The game is represented by the tree below and the figures on the right represent the payoff for both players (firms) depending on the final combination of choices. Firm 1 High Firm 2 Low Firm 2 Medium Firm 2 High Medium Low High Medium Low High Medium Low 400, 380 340, 410 230, 330 400, 340 360, 350 210, 360 370, 300 350, 260 320, 310 I How would the game resolve itself? (this is called the "Subgame Perfect Nash Equilibrium). Provide a detailed explanation on how you reach the SPNE. Imagine a situation where two firms need to choose a price to position themselves in a market. This pricing decision is not done simultaneously but sequentially. Firm 1 is the first to choose and have three options: low, medium or high price. Based on the choice of Firm 1, now Firm 2 can decide its price choice. The game is represented by the tree below and the figures on the right represent the payoff for both players (firms) depending on the final combination of choices. Firm 1 High Firm 2 Low Firm 2 Medium Firm 2 High Medium Low High Medium Low High Medium Low 400, 380 340, 410 230, 330 400, 340 360, 350 210, 360 370, 300 350, 260 320, 310 I How would the game resolve itself? (this is called the "Subgame Perfect Nash Equilibrium). Provide a detailed explanation on how you reach the SPNE.

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