Firm 1 is considering buying Firm 2. It does not know Firm 2 ís value, but belie

Question

Firm 1 is considering buying Firm 2. It does not know Firm 2 ís value, but believes that it is equally likely to be any amount from 0 to 100. If Firm 1 takes over Firm 2, it will be worth 50% more than its current value. Firm 2 knows itís value to be x. Firm 1 can bid any amount y to buy Firm 2, and Firm 2 can accept or reject the offer. If Firm 2 accepts 1's offer, Firm 1's payoff is 3/2*x - y and Firm 2ís payoff is y. If Firm 2 rejects 1's offer, Firm 1ís payoff is 0 and Firm 2's payoff is x. Find a Nash equilibrium of this game.

Explanation / Answer

1:2 the Nash equilibrium is considered at the right time ands more than the existing state.

At this state no one has incentive to move to another state

Firm 2 accepts Yes No Firm 1 1.5x-y 0 Firm 2 y x Nash equilibrium 1.5x-y>=0 And y>x so 1.5x>y and y>x so for 0 to 100 for value of y

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