Game theory take home exam. around 10 questions.Microsoft Word - FINAL EXAM_ECON 484_WINTER 2020.doc...

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Game theory take home exam. around 10 questions.

Microsoft Word - FINAL EXAM_ECON 484_WINTER 2020.doc 1 ECON 484 Game Theory and Economic Applications Winter 2020 Professor Claudia M. Landeo Take-Home Final Exam Due Date: Wednesday, April 15, 2020 (11 am) Read carefully each question. This exam includes 4 questions. 50 points is the maximum number of points for this exam. 1. (14 points) (a) Describe the theoretical model studied in Landeo and Spier’s paper “Naked Exclusion: An Experimental Study of Contracts with Externalities” (American Economic Review, 2009). (4 points) (b) Characterize the theoretical predictions regarding the effects of discrimination. Provide normal- form representations and equilibrium solutions of the relevant strategic environments to support your answer. (4 points) (c) Discuss the experimental findings regarding the effects of endogeneity. (3 points) (d) What are the policy implications derived from this study? (3 points) 2. (12 points) (a) Describe the theoretical model studied in Fonseca and Theo-Normann’s paper “Explicit vs. Tacit Collusion – The Impact of Communication in Oligopoly Experiments” (European Economic Review, 2012). (3 points) (b) What are the goals of this study? (3 points) (c) Discuss the experimental implementation of the theoretical model. (3 points) (d) Discuss the findings from this study. (3 points) 2 3. (14 points) (a) Describe the main elements of the theoretical model studied in Landeo and Spier’s paper “Incentive Contracts for Teams: Experimental Evidence” (Journal of Economic Behavior and Organization, 2015) and provide an extensive-form representation of this environment. (4 points) (b) Discuss the goal of this study. (3 points) (c) Describe the experimental design and main results. Are the results aligned with the theory? (4 points) (d) What are the implications of these results for the design of labor contracts? (3 points) 4. (10 points) The legal scholars from the so-called “Chicago School” argued that exclusive dealing contracts wouldn’t be written for the sole purpose of blockading entry into an industry. Instead, they argued that such contracts serve legitimate purposes, such as preventing free riding by competitors and encouraging efficient investment. (a) Describe the Chicago School’s argument concerning exclusive dealing and entry. Your answer should include a discussion of producer surplus and consumer surplus. (5 Points) (b) Explain why the Chicago School argument might not apply to Anheuser-Busch’s contracts in the U.S. beer industry. That is, what features of the beer industry were missing from the original argument and why do those features make a difference? (5 Points)

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Kushal · Accepted Answer

Q.1 
1. Theoretical Model – 
In this theoretical framework, one incumbent player and one new entrant is considered. These are upstream sellers and there are n number of buyers. There is economies of scale and more exclusive deals would deter the entry of the new entrants. 
This can be divided in three stages . 
· Acceptance subgame – The seller makes the transfer payment offer to the buyers if they promise not to buy the goods from any other manufacturer.
· In the second stage, the entrant decides whether to enter in the market or not, Entrant only enters the market when the industry is profitable and none of the buyers have accepted the offers from the incumbent.
· In the third stage, the prices are decided based on the entrant’s entry. If entrant enters then the prices would be competitive otherwise the free buyers will be at mercy of the incumbent 
2. Effects of discrimination – 
When the discrimination is possible, the buyers will both end up accepting the offers from the seller in the stage 1 and this would lead to deterrence of entry.
Whenever the discrimination is not possible, the buyers may or may not reject the offers and entry or exit cannot be predicted.
For example, whenever the buyer is not able to discriminate, 
The seller  will give the same offer x1 and x2 to both the buyers. Hence, based on the communication between them they may or may not reject the offer.
Suppose the incumbent seller is able to discriminate between the buyers. There are multiple subgame perfect Nash equilibria, all of which involve exclusion. In these equilibria, x1 + x2 ≤ 1,200 and both buyers accept
3. Experimental Findings- 
· When the buyers can communicate, the discrimination raises the likelihood of any exclusion
· When the sellers can communicate and the buyer cannot discriminate between the sellers and has to make the same offer to everyone, then the likelihood of the exclusion decreases.
· The payoff endogeneity increases the likelihood of the exclusion when the communication is allowed.
4. Policy Implications – 
· In order to ensure that the competition is not hampered in any markets,

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Microsoft Word - FINAL EXAM_ECON 484_WINTER 2020.doc 1 ECON 484 Game Theory and Economic Applications Winter 2020 Professor Claudia M. Landeo Take-Home Final Exam Due Date: Wednesday, April 15,...

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