Intermediate Microeconomics and Its Application 11th Edition by Walter Nicholson,Christopher Snyder

Exercise 4

Consider the war over the new format for high-definition video disks discussed in Application 5.3, but shift the focus to the game (provided in the following table) between the two firms, Sony and Toshiba.

a. Find the pure-strategy Nash equilibrium or equilibria.
b. Compute the mixed-strategy Nash equilibrium. As part of your answer, draw the best-response function diagram for the mixed strategies.
c. Suppose the game is played sequentially, with Sony moving first. What are Toshiba's contingent strategies? Write down the normal and extensive forms for the sequential version of the game.
d. Using the normal form for the sequential version of the game, solve for the Nash equilibria.
e. Identify the proper subgames in the extensive form for the sequential version of the game. Use backward induction to solve for the sub-game-perfect equilibrium. Explain why the other Nash equilibria of the sequential game are ''unreasonable.''