Return to the game of Monica and Nancy in Exercise S10 of Chapter 5. Assume that Monica and Nancy…

Return to the game of Monica and Nancy in Exercise S10 of
Chapter 5. Assume that Monica and Nancy choose their effort levels sequentially
instead of simultaneously. Monica commits to her choice of effort first, and on
observing this decision, Nancy commits to her own effort.

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Return to the game of Monica and Nancy in Exercise S10 of Chapter 5. Assume that Monica and Nancy…
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(a) What is the subgame-perfect equilibrium to the game
where the joint profits are 4m + 4n + mn, the effort costs to Monica and Nancy
are m2 and n2, respectively, and Monica commits to an
effort level first?

(b) Compare the payoffs of Monica and Nancy with those
found in Exercise S10 of Chapter 5. Does this game have a first-mover or a
second-mover advantage? Explain.

 

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