Consider the following output-choice game for two firms:

What is Firm 2's first-mover advantage in a sequential game relative to a simultaneous game?
A) Zero
B) 40
C) 50
D) 110

Question

Consider the following output-choice game for two firms:

What is Firm 2's first-mover advantage in a sequential game relative to a simultaneous game?
A) Zero 
B) 40 
C) 50 
D) 110

Quizplus · Accepted Answer

In a simultaneous game, both firms would choose "Output" and receive a payoff of 30. However, in a sequential game, Firm 2 can choose "No Output" and receive a payoff of 50, while Firm 1 would receive nothing. Thus, the first-mover advantage for Firm 2 in a sequential game is 50-10=40. The best choice for Firm 2 is to choose "No Output" as it maximizes its payoff.

Consider the Following Output-Choice Game for Two Firms