In 1919 Fisher Body (FB) and General Motors (GM) signed a contract that made FB an exclusive supplier of body parts for the cars of General Motors for the next 10 years. This was done in order to encourage FB to invest into equipment and technologies needed for customized body parts exclusive for GM vehicles. Let us break down this situation using the following simplified breakdown of the situation.

Abuyer approaches the supplier and suggests that the supplier launches the production of the parts specific for this buyer -- that is, the supplier will not be able to sell these parts to any other company. The contract will be exclusive for the supplier: no other supplier will receive the specifications for those parts. The investment in the production facilities for these parts will cost the supplier 1000, but the buyer offers to pay a premium price, so the deal is estimated to bring 1400 on top of the profits from the regular parts, with the resulting value of the project being 400.

On the buyer side, even with the purchasing price premium, the specialized parts will result in extra 500 of profits. However, without the price increase the buyer's profits will be even higher: 1000, but the supplier will barely have the investment costs covered, with the resulting net profit of -100, after the investment is taken into account.

In a case the buyer refuses to pay the premium price,the supplier canretaliate and stop the production of buyer-specific parts. In this case the supplier loses the value of her investment, but the buyer loses even more (1500), because there will be no other company that can supply the required parts.

(a)Create the extensive form representation of this game (i.e.,the game tree).Neatly hand-drawn and scanned diagrams are OK

(b) What is the SubgamePerfect Nash Equilibrium for this game?

1.The supplier invests, the buyer pays the premium

2.The supplier invests, the buyer does not pay the premium,the supplier keeps collaborating.

3.The supplier invests, the buyer does not pay the premium, the supplier retaliates.

4.The supplier does not invest