Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

تمرين 5

Consider a two-stage game in which firms first make a strategic choice such as product design, location on a Hotelling line, capacity, advertising, etc., and, second, compete in prices or quantities. Why is subgame-perfect equilibrium a useful equilibrium concept? What sort of ''crazy'' Nash equilibria might be ruled out?