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(f) (4 marks) Suppose PN = $45 and the firms move sequentially instead of simultaneously: Telstra sets its monthly subscription fee first. After observing the
(f) (4 marks) Suppose PN = $45 and the firms move sequentially instead of simultaneously: Telstra sets its monthly subscription fee first. After observing the fee set by Telstra, Optus then sets its monthly subscription fee accordingly. Construct a game tree for this sequential- move game and find the SPNE of the game. Make sure you specify each firm's strategy properly. (g) (4 marks) Suppose now NBN and Telstra merge to form a new company called Telstra-NBN (mostly likely Telstra acquires NBN instead of the other way around :)). The demand and cost functions remain unchanged after the merger. Suppose after the merger, Telstra-NBN and Optus play the following two-stage game: Stage 1. Telstra-NBN sets the wholesale price PN. PN is either $45 or $55. Stage 2. After observing PN, both Telstra-NBN and Optus simultaneously set their monthly subscription fees Pr and Po, respectively. As in (b), the monthly subscription fee can only be set at $60, $65, or $70. Note that Telstra-NBN operates in both the wholesale and retail markets, and Optus operates only in the retail market. Find the SPNE in this game. Compare your answers with that in 3
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