? E XERCISE 229.1 (Subgame perfect equilibrium of chain-store game) Consider the following…

?   EXERCISE 229.1 (Subgame perfect equilibrium of chain-store game)  Consider the

following strategy pair in the game for K = 100. For k = 1,… , 90, challenger k stays out after any history in which every previous challenger that entered was fought (or no challenger entered), and otherwise enters; challengers 91 through 100 enter. The chain-store fights every challenger up to challenger 90 that enters after a history in which it fought every challenger that entered (or no challenger entered), acquiesces to any of these challengers that enters after any other history, and acquiesces to challengers 91 through 100 regardless of the history. Find the players’ payoffs in this strategy pair. Show that the strategy pair is not a subgame perfect equilibrium: find a player who can increase her payoff in some subgame. How much can the deviant increase its payoff?

 

 

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