Figure 14-7
Refer to Figure 14-7. Uniquest, Inc. is a company that provides PCs with Internet access and touch-sensitive screens to hotels. Suppose the Hard Rock Hotel and Casino in Las Vegas informs Uniquest that it is considering installing these systems in its hotel rooms. The Hard Rock expects to be able to charge higher prices for these rooms if it installs Uniquest's systems in its rooms. The two companies begin bargaining over what price the Hard Rock will pay Uniquest for its systems, and the decision tree shown above illustrates this bargaining game. Note that the profit figures listed in the decision tree are
additional profits for the Hard Rock and
total profits for Uniquest.
| a. | Suppose the Hard Rock offers Uniquest $1,200 per system. Will Uniquest accept or reject this |
offer? Why?
| b. | Suppose the Hard Rock offers Uniquest $800 per system. Will Uniquest accept or reject this |
offer? Why?
| c. | Suppose Uniquest attempts to obtain a favorable outcome from the bargaining by telling the |
Hard Rock it will reject an $800-per-system offer. If the Hard Rock does not believe the threat is credible, what will it do? Why? What will Uniquest do? Why?
| d. | Is there a subgame-perfect equilibrium in this situation? Explain. |
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