Louisiana State University, Shreveport ECON ECON 705 The ability of a firm to raise its price while still maintaining a…
A game tree showing decisions between Kramerica and Vandelay . Kramerica makes the first choice at node 1, choosing either high or low. If Kramerica chooses high, Vandelay (at node 2) chooses either high (in which case Kramerica earns $20,000 and Vandelay earns $8,500) or low (in which case Kramerica earns $16,000 and Vandelay earns $9,700). If Kramerica chooses low at node 1, Vandelay (at another node 2) chooses either high (in which case Kramerica earns $23,000 and Vandelay earns $7,300) or low (in which case Kramerica earns $14,000 and Vandelay earns $6,800).
Using backward induction, Kramerica presumes that if it chooses high, Vandelay will choose
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