This is a question about Tony, the seller of durable goods, whom we have met before.

1. This is a question about Tony, the seller of durable goods, whom we have met before.
This time he is selling to three potential consumers,
H;M;L:
Remember, since the good is
durable, if a consumer buys it in period 1, she obtains utility from it for two periods; if she
buys in period 2, she only obtains the utility from period 2.
The utilities, which are in equivalent dollar units, of the various consumers are given in
the table below:
Period
!
1 2
H
utility 1500 700
M
utility 1200 400
L
utility 600 300
Thus, if
H
buys in period 1 at a price of $1000, he gets a payo§ of 1500+700-1000=1200.
Similar calculations can be done for the other consumers. If any consumer does not buy, she
gets a payo§ of 0. Thus
L
would be better o§ not buying than paying a price of $1000. If
Tony charges a price of $1000 in the Örst period and $100 in the second period and
H;M
buy
in the Örst period and
L
in the second period, Tonyís payo§ is $1000+$1000+$100=$2100.
The game is as follows: Tony announces a price
p
1
in period 1. The consumers simulta-
neously and independently decide whether or not to buy in period 1. Whoever buys leaves
1
the game. Those who do not buy remain. Who remains is observable to everyone involved.
Given this observation, Tony announces
p
2
in period 2.
What is the subgame perfect pricing policy for Tony? (Please make sure you write down
the strategies for all players and show why it is subgame perfect.)CLICK HERE FOR MORE ON THIS TOPIC