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Please help with the question about bargaining, thanks 4. Bargaining. Two players bargain over a pie of size 1. There are two rounds. In the

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Please help with the question about bargaining, thanks

image text in transcribed
4. Bargaining. Two players bargain over a pie of size 1. There are two rounds. In the rst round, both players Simuitaneousiy propose an offer I demand. If the proposals are consistent with each other (i.e., the sum of demands is no larger than 1), they split the pie accordingly. Otherwise, they continue to the next round.1 In the second round, the size of the pie shrinks to 0.7 (i.e. 0.3 of the original pie is taken away by a third party). In the second round, they bargaining differently: player 1 proposes a division, and player 2 decides either to accept or reject it; If player 1's proposal is rejected by player 2, the game ends and both get 0; if the proposal is accepted, the pie is allocated accordingly. Consider the concept of subgame perfect equilibria. (a) In the second round, what will be the equilibrium outcome? [5pts] (b) Can there be a subgame perfect equilibrium such that an agreement is reached in the rst round with a division (0.6, 0.4) , i.e., 0.6 to player 1 and 0.4 to player 2? Briey explain. [IUpts] (c) Can there be a subgame perfect equilibrium in which there is a disagreement in the rst round? Briey explain. [10pts]

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