CHAPTER 5: EPuTATiON AND REPEATED GAMES

PRoBLEM SET 5 Oct 10,2031

5.2
Mcchh he qane_Preduct GucsitRamn, hatter 5) by
assuming hat he selkr miareprets his qucitq he inst,
a a reuk ca dlage-action &uit bas damagiR ce r
per
intt ecld dhere E (O,
coof reducing highquelit
(a Alhat ftnction of a Ee amdr?
Ig grecler han ohen 1 =O
Ohere 13 he neo equlbrium price
ANSAIER

lo gaoicd
aYoid low qualdy t_msbe sthat fr

4- Itr
1 h e dlame0 he To
alb- is he Oeu o moneu he_Ol makerom he
ldpe qarte procuct
h eCuno ctf al dhe iurture poripdg to he_bresert
tr we are brinanai2erod trom he tuture o he bresert

g-z
r
Te e cihee he inequal rtvol| be ihe looesspet 3c4ehe on
and So

rg=rqa ge t rg=rgo
ro th-e-re Y = O
rL t p - - r e O
b t r ) e -rz
Peht i LowtM
khen fere is and
a punichment e-ro
t you cont
eec
Nalue cdh9
as "lhen 20P E1tr)
hen 70 <(tre- rz
e has hah huQ he recati C a laoQut reduees he quclti-
mor ale he ensurinq priee
oll Lehae

(6) Alhe ie the equullbrum_ctku ber fim 1e t

arecter dhan LOhen O
AnIGAIER

tor zero protis eLigpte TPe F

PA
P - C o u r o Sua s s
tr) r

hug
t re-ra =rE

-2)

Alhen 2O, C
and
eis SmtcA
lhen 0 , hen g,0 _40
Puetwtx Concurners buumore whunhe price ore louoer
anfor e hoh quali procduct.
 he equillerium cLtpe hag inerecased_heecuge 170,
OAhat ig dhe egiillberiuum nlimber ce Hihmg 2 1 it cpecte
Hhan ohen = O
matket ClEALMg
ANSAlER
nis
For upbly to equa demand
qlk) ohere 4 e clput ohh
nE
n4r thtirn_produce

Etal Supply Tal Dermand

9o thd (Subsititinq for g andbae

2 nFt r e - +re - ra)

he nlimber miast eiber inereage cr deereaRn

he erm clecrease in a 0hich vedeces h.
he ameunt deore.aßes n fo, o gl ncreae
Lchich ill inereage n. he demand ieelastie encugh
nillngreaee n z and cherdig0it will decrea te.
C- DeCtenS 4 ( /wlt iPcloag he tr Demped Goesur)

Hts Sueea@efillydetend binochat ihe incentrie

dcmxdibili Constrai
IA
 PeG: pla
5.4 Entry Deterrenee |L
lajerg o r me errant ard he intumben
ntermaticn Perctect (each tormdtion set ainaldon),
md certain nature coes nct move ater m blaer mo
Actong nd ben
he ertrant decides Lohetber to Eter_or Stau Ctt
. IE e entrant enerShe ineumbert dan lellude Cth
hm Or_hight y dutting dhe price drasticallu
PaLa& Mrlet profto_ore 3co a he moncokrice
and
a n d O at he fiahtinq ricc,tntry eotg jo.lolusion
e cluopalqaompetiionbretiueee 6e marbe prott to lco;
Homg3horeHheprofit pNenly
be gtoatea Setg creEnter,ay et itor he entrs
andColleicde entre oears,itiaht eincoeurgfor
heneumbethel came hastoo Nash Equilbria
(Etertollude) and (Stay Ot, Fiqkt ).
Deterrene
Ineumber DNE-ro one
Collude Fiatht
Ester e, 50 -IO,Q rombs
Enraii eclorum
Stay Out ,300 O300
Payct to : (EntratTneumbernt)
e equillcuun (Sta Out, Eight ) ig 0eak fe
beeause he
lntumbint cddustagdell Colude nen tht He
Etotk StauinaqQut
 Leokng at tbe etengrve foem fon 1hie qame
Entr Deferrence
Colude (40,50)

Fippt
Stp Out
AesLime hat Eate Detercenee repeadc. an
ibtinte number ctmée, loth a tins ditourt rae
and oth bauee received a he drt ofeach
pepiodTn each pericd he entrint choo9es_ knten
Lor Say Out, even P he entered bresicucl
la) What ig bertect eqilibrun n ohich the entraut
energ eadh period 2

ANGWER

Eater ollude eGeh. pericd, linu berbaTS T deie

trom the equilbrium

b)Alby i (Sta Qut, iabt nct a brfect

eguilerim?

AarelER
(Sta Out, Eiqht [Eotrs) qNe@ e ineumbent
no incetve 10 Fitt. GiNn he eiront 2
hcoce
StrdkcquH Semebeuo fhe qane_endo up she
 lequllbrium pathoih he entrant basinq eptered L he
entrant ll Sty Oct 'mSueteediabeile, Henet, the
ineumbertOald desicdto h hcasinq ollude ad qd
50 insfead ati O,

Aha ig_a perfect equllium n Lohidb he etrant neve

enter8

ANSUlER
Kntat:Stay Ot uksa te 'numbet ba chosn lellecde
n &ome presiou_bercd_n 0hich cace, knter

lneumbernt haht Enter nkeg e intumbert hag ehosern

Lollude n Somne preicugbericd 'n ohich eace, lollede |krër
Th bieequlbriumhe ineumlert SuHeng_a beavsberaty
beeNercolludes
ldAlhat ishematimum disecut ratoto whih Lour
9trateq
rateqyrofile in port (e)kGhi_an_equilbrium
AnuCUIER means that we don are qbout ihe

fe decoct ate is to highatfe katpatl enr

and thenumlbent oill breter o eollude.Suoce he
kntraat ha9 ertered, and eineLmbent ha neve
colluded, he neumberst& ohoiee i betueen
Ee 1(oLLO
0clhude=50t50
and
2 tigt O t (300
 loollude)
50 t 3
fiogt)
O t300
ortnq 5 0 r t 50 300 5or = 50 r - 5
heec hese iuo baole equa 6 each ather H
50. t50 30o o r b,fhe distout
rate anuhinqle9 he equlhbrum in (e) emane
an egLullrium rz5 5,hen he ktrent will
enier,gnd heretore he equilbrum inprT (e)
ould ait to remain an equilbrum
tor Naue@
tor o r 5 , he bayalf drom tightin ould
Suhetute Le arecr han thebayaft rom eolludng heretae,he
le Aand equliErium which was dbechted in brt (C conlmuec o6
:ints an eQuilhbrium.
He Fan
When
collude) 50 t 50 2. 5

Tfight-o t30 15

When rs 5
colude 5ot 50 CO

5
lhen r: o,
OTcollude 5 0 t 50 59.3

Co
 Oct. a1, 2001

5.
3, A eklkdicn_efeholang_ore plajing theollcnqeccrdraio
aame OYer her tu pogeille OpNergation pieeVer unch
Hoelall and eeonom0. Let NeLE and i AlE) Le #fe
number ho talktocttall and econcmie_in bericd t.
Let e e theferetage ho fadk theball, 0

NCaall
NCtocttdl) t Nleconcrria9)
Certenmet requlcdion
requiring lunohrtime crdtendanee ad
tulainqhetepie lcoNerectio n have mciiared the
htalue =0.5 E 50 ooo and NE) 50 C00
u ts higLjecr 2ederequledory &tcem retrm,ln he
Hiture omepecble mau keide t q home folurch
ingtead or chanqe her onNercaicnlhe folleún trle
ghoug she paicts._

kNoluibnanluyStae Crateaies
Scholar
FoolballO)Eeonomice (I-
FoolLall
Scholar L
Koonomits-) O, 0 5
PayotPA To : (holar chelar
ahre are bree Mash kquli.cia : Facllball focteal
Rechcmicg_ kecnomi0
@)_and a mired-Stratequ
equullrrme hat are he eNolction.ar tale strteqy
ANSAIER
Fccllaland ktoncmehe mized_Cfrcdecqu e.an k hyaded
by erher of heoe Sinee each Grateqy doe Nery el
aqancito andalo does coelln hmixed pdcrtron.
 Shctongthie
For mited ethdtey
kabeclecdauel trellball) Eapected kaelt (Eeceie)
1(9 ol1-)-olD) t 5(1-9)
51-0
5

LMNS PL AI , AD S9 7htm Sent

kapecded bauot e mixed erde againgk ie

0+olO1-) tbli-)94 5(1-e
-)1- I02 t5(1-0 0 t502-1o+5
1-20 t02 =Co92-I09 t5
5ll-30+ ibefitutiba q N e s
5-109 +5

O.83

apectect bauet o ottall ane med Stretrqy

LCO)+Ql1-e )
= 5 Q.83 i

So, plapng foolbal agangt mixed stratay

aNeaeactayott ot plaing he m
me12e
. Shateay aqainrhimSet
 Eacetedaplf o cecooieeaqimst mised Hrateqs
olOt5(1-0 f erate at chich
dhey reproduco

Ted otreia ca te ade by k ajina fodeoil pr aple playn

Cconomic S.
DLt N4(e) be the humben ot gehclerg_plaunq a badir
Sfrdtkqyin_bericdt and let JEebe he aycteBee
a Narkoy ddferenee equlationts ezpre0g thepchulation
cunamie@ thomone pid he pext: Nte )
NS), O).Start th yctn oifh a bopulcetren
OF IOOOoO_,hatE he cbolar9tAkinq toctball nd haf
tallin_LConomia
CIge ycu denamie ts fhish he folleron tale
fwnla ECo
t NCFN.(E) T (E
Edeced PaplP a0-50 00o 50,000.5 O.5 2.5
of Football,T)
Eapeted_ Paueff
tolkig Economic,
TE ) :3.5:1NB: Derequlctrion toakee_place a t9
ArNSIER
One ohe mant delle dynam109 ig N
N C.4 IGLO his ie ghaon in te talle leleo
e51- t Ne CF)k:CE) tCF) E
-5/-O161-5e,.00 5000050.5 2.5
OE0,000 60,000 o.5 O.5 8.5
D,c050,0000-167 o.107EA11
G1 62,233 o.0 O.001|A.A65
 O00 73
(
bLOOO L
L9
GNtEÝN
TLTOroJ o00
T= M
T.LTO
OO0 OG OO0O
O00 O
3N+ENPUuuoy3N PHOF)N MAN
GN .
OG
V Crojoo o9
TC rojaN N1:1H
O00 Ol
O- UPM
 It i9 more prftolble to talk eeonon
A Markov egucthon ony takeg the hst heriocl into atcourt
uto accaurt bet some
non- Merkóy,equahon' ndt only tokes Re lat penord
Rc E , bt ohecihin4 non-MerLe clypdmits
N t e ) i fN(), TO O)
ANSALER
Che o he manbcgble_cynamieo i
N ) =N (e)o.2 T + 0.2-L)
hie ghoron in dhe table Lelad
NCF)N(E)
O.5 .5
50,00050,o0o 0.5_
50,00o 50,0000.5 O.5 2.5
IO O0O 50,000|o,1C1 O.167 A.1C7
2 ,2333 Go, Co7 o.020 o.02 4.10
phen t L a
N, (E N,E) LO,2 E t'o:2g (A]1
1OCco [_O.2 (0.161) t 0.2 (O.5|
=1833

N,(E)N,(ELo.2,LE) t 0.2aT,(E)
50 COoO24.IG7) Fo.2/2.5)1
o, 7
1333 = 0.020
N,CE)
N,F)+NLE) 333 tGo,o7

E)= 5(1-En 5l-O.020) = 4.90

 he tadble oeloo hoco8 he buuttetor he
Similtantoc@ moNe qame c 'miied Mnimauna
Mipimha
LIge tr herdabldqhat Rao_choocoe Norle
0hen mirtung nd T , e roablHq tft lolumn
ecou Ae. Paolt to:RoLololumn

olumn
lest kast
1-)
North.L0)L, O,-a
Rop
Souh1--3,0
(a Mbcdt_are he three Na9h eguililria
ANRUIED
(Ncrth, Aleot),cLh, fast) md.a miaed
Grctequ egulbrurm 0th = = O.5 tram
Rovo is ivdierert
etuoeen playing
Ner =(0tol1-T)
Norh an (Scdh =(-)T t 1(1-T)
Piorth No - T ,(South) = -2rt1
nd =0.35
Mleet)= ( + ol1-
Eat
let)- Eat)= -29 t-0
-30 H

=D25
Alhat Lchuran2a hayolf n de lfe Noshesuiliaia2
fNSAIEL
T in he TOo pure equullbra and 0.25 in he
ted Straegq equlibrum
OAlba 10cldlohumn'egraka formnimatng Kou
PolhLolh were reetrictd b bure Strateq and ohadt culd
Row 28 mmnma tyd hen ke2
AneAIER
lo mDIMILe Keco?g maximumajat Column LLuld ehocee
ertber ee pr kat.In ether pae, Koro lm reelrnd to q
la payet c .
dhet k lolimn?9 Sfrateqfor mnmaan Roroi t
mixed Sstrateqee_areallesed2 Wbat s
Rod_minimar
auc 2
ANeWER
lolumb
Column hcoe Then kaw 22_payc o he
maumum o T he choee Norh or_-3 T um
=-2 t|(1-T) he dhceseeut)
0.5_minimLZes h e maximum.Kc bal apalch
c O.25 O.25(1 or - 3(0.25). Ta l-3T

Demonstrctiq hie qraplicalls

Hereh are truin 0 pick Colnn' Chadeay t mininIr kod
aupho on e - 0 1 e ill hae koo2 baudE md in t
1acis De hae he hina whidh olumn chooSas 1e 1he_rehobild
hrn4gbihu blumh plaue1
et lolurnn ap4
laamma Colurnn
 UPu beuirn
o
f{

mranite 5Sath
Th lineRau
hen plays
hie Iine
represts T phen
Rdod play9 Nor
O5

C50.
TCol TEe stalue ot
Ro rsonds Rod responda loluenpicka T-
wh Norh

Pben O Kow lays Norh)

hen O , Koo lays Coh)

-27ti- -3+1
ROW

plhen L
-3C0 - 301) =-2
Cclumn1Dan1e to mininizeow maztimum baut
heretare he aheuld þick T:O.25
hesadue e Tehich egudee bdh actrn9 io 0.15.
For Yahe@_c lese hn C25 Koro
respcnd by cheatngScaete Yalueg_o
qreater hn_O.26 Row wllrechornd byL choaCrq
Nor-hRew Beeke t_ahoayg be_on de aolid lineSnet
 line heuCld do etter ks moin
dotecd
be rere cn be linegrepre cetg he
pmacimLin
Cclicd interaert ie
Ho e Selid line adcalakle to Koa, alhere dhe
aycH Lwbich maimun_payot_Ll. h e minima
minmm C be
boh_player
Reo?g maimn rategu be i
het 20dd
grteqe oht weded bie
and
Loere r sricted fts pure
ma mn o f hen le

ANSnIER trom plaunq Norh

RocO ncn_qet
einimum paot
he min mDuo he n_4 trom
tomaplimLe hieeteret-by
plajhg Sch is 2. H he play& ord lolkamn tol cheesm
Noch
pinmdm baok be will choose
kas be bauct to Kod oll bea O
Row' strateay mizecd Strateqjeg
hat ie maimn
caol?
art adlorued_Alhat g Roro8 maumin

ANSAIER
clunn_ehecge Weet, Rew_(0cud exlect qet
-2(1-=30-2 ohle Column plakd Eaet, Roroo
dd eaect to cet (1-.kquching beth bese_expected
aoksqieo = 0.75
i.e. 39 - 2 = - 0
&-4 =O.755
40 3
or Yalue9c4O.750.75 Column_oll daco e kst hopirnq
make Raw ez_pos aoc equd t - 2 . h e
iclkuonq diaqram shco& dhe Stucitch.
 ic lire represute (-0
Lhen eqlumn bla
Kast.

O.75

Tic line represtnte

(30-)ahen Cokmn plays
Ptest

Co luon respondc
Coluron reshsonds_utb
les

he_iuimun bajctfe iaoililble RoReco ia ghonby

heSolid ;line)bartiane dhe lnee. A he ie cn
cn adachedbor-ticn dbere a colid line eeko
Lchere he. i . hadler to mazmze the
minimumprotts he doe@ Qo bere he lineg
ercect he. = O75.

Here0e are ing 6 pick a crdecs bu koo T6

rctect bimecro ohat claon an_dots himLe
Cluron g Yuin tD toreehs bauc t6 be a minimLim
and he n 4 D maimizehct minimim, So on
he -aie hae Kou 28bruct ehe S6e
-ade we haQ he oina thar Bow hcke,ie.