1.In the telecommunications market, Airtel is considered a 'leader' in the sense that smaller firms observe its choice of prices before deciding their own prices. To model such an interaction, consider a sequential move game between two firms competing on prices. Firm 1 is the leader, i.e. the first entrant. Firm 2 sets price, p2,after observing the price, p1, of Firm 1. The demand functions faced by firm 1 and firm 2 respectively are

Q1= a - p1 + 0.5*p2

Q2 = a - p2 + 0.5* p1

Assume zero costs for both firms.

a.Draw the game tree

b.Find the rollback equilibrium, and the profits made by each firm in equilibrium.

c.Does this game have a first or second mover advantage?