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ECO - Suppose you are attempting to buy a used bicycle

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Question;Suppose you are attempting to buy a used bicycle, and you are bargaining with the owner over the saleprice. The bike is worth $200 to you and $100 to the owner (he can sell it to another customer at a later date). Assume that bargaining takes place with alternating offers and that each stage of bargaining (an offer and a response) takes a full day to complete. If no agreement is reached after 3 days of bargaining, then the opportunity for sale disappears and both get zero. Suppose that both you and the current owner discount the future according to a discount factor of? per day. The seller has allowed you to make the first offer. (Denote the buyer as player 1, the seller as player 2, and denote the selling price by x.)

 

Paper#56997 | Written in 18-Jul-2015

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