Ec 2010a – Game Theory

Fall 2018

Assignment 4

Due December 9th

1. Consider the following three player game:

Find:

(A) the Nash equilibria in pure strategies

(B) the subgame perfect equilibria in pure strategies

(C) the perfect Bayesian equilibria in pure strategies

2. Suppose that ( p1 , , pn ) is a trembling-hand perfect equilibrium of a finite game. From

the definition in class, this means that there exist  m ( si ) → 0 (for each i and si ) and

( p1m , , pnm ) → ( p1, , pn ) such that, for all i, pim is a best response to p−mi subject to

1
 the constraint that each strategy si is played with at least probability  m ( si ) . Show that,

for all i, pi is a best response to p−mi for big enough m.

3. Consider the following incumbent-entrant game. The incumbent (player 1) is either

“tough” (probability .9) or “weak” (probability .1). The incumbent’s type is private

information, and the probabilities are common knowledge. The incumbent first decides

whether to build capacity (B) or not (N). The entrant observes the incumbent's decision,

then decides whether to enter (E) or stay out (O). Here is the extensive form:

(A) Find the pure-strategy PBEs of this game

(B) Show that only one PBE survives the Intuitive Criterion