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2. Consider a situation with a buyer B and a seller S. Buyer's valuation of the good is v and seller's delivery cost is c.
2. Consider a situation with a buyer B and a seller S. Buyer's valuation of the good is v and seller's delivery cost is c. Assume v > c, so trade is socially efficient. Let p be the price such that v > p > c. We can write this information as normal form game with a buyer (row player) and a seller (column player). The first (second) element in a box refers to buyer's (seller's) payoff. Seller (S) deliver not deliver Buyer (B) pay p U - P. P- C -P. P not pay p V, -C 0,0 (a) Start by analyzing the game such that the buyer and the seller choose their strategies simultaneously. What is NE? Is it unique? (b) Assume now instead that the buyer moves first and the seller observes it and chooses then. What is the SPE? How does the the situation change if we change the order of moves so that the seller moves first and buyer then? (c) Is there a way to overcome the inefficient outcomes in part (a) and (b)
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