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Game Theory Problem
Here was a game theory question posed today in my economics class. Can anyone figure it out?
There are two companies, Company A and Company B. Company A wishes to acquire Company B. Company B is about to undertake an oil exploration project. -If the exploration is a complete success, Company B's shares will be worth $100 each -If the exploration is a complete failure, Company B's shares will be worth $0 each -Any value in between these is also possible, and no outcome is any more likely than any of the others -Under Company A's management, Company B's shares will be worth 50% more Here are the rules of the acquisition: Company A must make a proposal for how much money they will pay for each share of Company B Company A must make this proposal before the exploration project begins Company B will decide whether or not to accept Company A's proposal after they have learned the results of the exploration project Company B will only accept an offer greater than the value of its share price Assume Company A wants to maximize profits, how much should they offer per share? |
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