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Homework answers / question archive / 1)In sequential game, please explain the difference between the first mover’s advantage and the second mover’s advantage

1)In sequential game, please explain the difference between the first mover’s advantage and the second mover’s advantage

Economics

1)In sequential game, please explain the difference between the first mover’s advantage and the second mover’s advantage. Please give the examples of both cases.

2)Anne has a job that requires her to travel three out of every four weeks. She has an annual travel budget and can travel by either plane or train. The airline on which she typically flies has a frequent-flyer program that reduces the cost of her tickets according to the number of miles she has flown in a given year. When she reaches 25,000 miles, the airline will reduce the price of the ticket by 25% for the remainder of the year. When she reaches 50,000 miles, the airline will reduce the price by 50% for the remainder of the year. Graph Anne’s budget line, with train miles on the vertical axis and plane miles on the horizontal axis. Remember that the slope of the budget line is the relative price of the two goods.

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1)Before knowing the differnce between First mover advantage and Second mover advantage of Sequential game, Let us first know about what is Sequential game : A Sequential game is a game where one player chooses their action before the others choose theirs. The most important thing is that the later players must have some information of the firsts choice otherwise the difference in time would have no strategic effect. After knowing the meaning of Sequential Game, let us find the difference between First mover advantange and Second mover advantage. 1. First Mover Advantage :- Many times by moving first a player can determine the direction of the game forcing other players to react to that choice rather than moving on independently. However not all sequential games have a first mover advantage. In fact some have a Second Mover Advantage. For Example Consider The Following Game :-

If Amy chooses Up then Bernard will optimally choose Zag. If Amy chooses Down then Bernard will optimally choose Zig. In both cases Bernard will end up with a payoff of 1 while Amy will have a payoff of –1. However if we switch the order so that Bernard moves first and Amy moves second then Amy will end up with a payoff of 1 while Bernard will have a payoff of –1. Therefore this type of game has a Second Mover Advantage.

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2)The typical budget line is linear (with a constant slope) because prices do not change. In this case, the price of airline miles changes depending on how many miles Anne purchases. As the price changes, the slope of the budget line changes. Because there are three prices, there will be three slopes (and two kinks) to the budget line. Since the price falls as Anne flies more miles, her budget line will become flatter with each price change.

Attached is the graphical represntation fro your reference:

 

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