Question

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n our background story, one truck maker (let's call it "Hord") got to go first because it had political connections. Another truck maker (let's call it "Nizzan") then had to go second. Now assume that their order is reversed, so that Nizzan goes first and then Hord goes second. When they play the game in this reversed order, which terminal node will the subgame perfect Nash equilibrium lead to? (Hint: Does it matter which firm goes first?)

Answer 1

It does matter since in subgame perfect equilibrium, we take out nash equilibrium of each and every subgame of the original game. Now if there is x at the last of the game and y is second last and if I change the order of the person who plays first i.e. now x is second last and y is last. This change the whole dynamics as in the orginal game, x was playing his utility maximizing stategy in the last subgame, now y will play his utility maximizing stategy in the last subgame which completely changes the answer to the subgame perfect nash equlibrium, provided the payoff of y and x are different in each other's utlity maximizing strategy.