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5. In the posted Powerpoint slides, we went over a one-period simultaneous-move pricing game with non-differentiated products and each firm (A and B) having the

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5. In the posted Powerpoint slides, we went over a one-period simultaneous-move pricing game with non-differentiated products and each firm (A and B) having the same marginal cost of $2.00. If the players could set prices in penny increments (e.g., $2.00, $2.01...$4.99, $5.00), the outcome predicted by game theory was that each firm would end up charging $2.01, rather than say the monopoly price of $5. Suppose instead, Firm A sets his price first. A's action is then observed by Firm B who then sets her price, which them ends the game. Based solely on game theory reasoning and assuming fully rational players, does Firm A have a first-mover advantage, Firm B a second-mover advantage, or does neither player have an advantage compared to the simultaneous move game? Briefly explain. (12 pts.)

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