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For questions 17-24. refer to the following game. Consider a procurement auction involving one buyer and two suppliers of an intermediate good. The buyer will
For questions 17-24. refer to the following game. Consider a procurement auction involving one buyer and two suppliers of an intermediate good. The buyer will pay $10M to the supplier who offers better quality. Quality is on a continuous scale of 1 to 10. For each supplier, the cost of delivering quality X is X million dollars (eg. if the quality is 5, it costs the supplier $5M). If there is a tie (qualities are equal), then the buyer will split the contract between the two suppliers (each gets $5M, and their costs are X/2 million dollars). Let X1 denote Supplier 1's quality, and let X2 denote Supplier 2's quality. Why is there no Nash equilibrium such that 10 > X1 >= X2? ( :) Unless suppliers choose the best possible qual'ty. they mmot be playing a best response. (:1 Supplier 1 could improve their payo by increasing quality. () Supplier 2 could improve their payotl by reducing qudity. (7) Either supplier could improve their payo by increasing quaity (it tied) or by reducing quality (if not tied) Why is there no Nash equilibrium such that X1 > 10 >= X2? O Supplier 1 could improve their payoff from winning the auction by increasing quality. 0 Supplier 1 would make a loss and can avoid it by reducing quality. O Supplier 2 is losing the auction and could beat Supplier 1's bid by raising quality. 0 Supplier 2 could improve their payoff by further decreasing quality
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