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Please help with following question from Game Theory by Tadelis chapter 16. Please find the attachment. (14} 4. Tadelis 16.5: page 337, Drug Ads: A

Please help with following question from Game Theory by Tadelis chapter 16. Please find the attachment.

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(14} 4. Tadelis 16.5: page 337, Drug Ads: A pharmaceutical company (player 1) introduces a new cold medicine. The medicine may either be highly effective (H ) or have little effect (L). The company knows the effectiveness of the drug: but a representative consumer (player 2) knows only that the prior probability that it is highly effective is %. The company can choose either to advertise the drug excessively (A)= at a cost 6 > D, or not to advertise (N): which costs nothing. The representative consu1ner decides whether or not to buy the product after observing whether the company advertised the drug. The net payoff to the representative consumer from buying the drug is 1 if it is highly effective and 1 if it has little effect, and his payoff from not buying the drug is (I. If the drug is highly effective then if consumers buy the drug once they Will learn of its efcacy and buy it many more times: in which case the company earns a high payofrr equal to R > c' If instead consumers learn that the drug has little effect then the company will sell the drug to them only once, and the company's returns are equal to '1" > 0. If the representative consumer does not buy the drug then the revenue of the company is 0. Assume that H > c > T > Cl. Also assume that if the expected payoff from buying and not buying the drug is the same, the consumer chooses not to buy. (a) Write down the extensiveform game tree. (10) (b) Find a separating perfect Bayesian Nash equilibrium in which the company chooses a different action depending on the drug's eicacy. (10) {c} Find a pooling perfect Bayesian Nash equilibrium in which the company chooses the same action regardless of the drug's efcacy. Does this pooling equilibrium survive the intuitive criterion

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